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KOREA A Dawning Ship Finance Exporter. Meriel. Partners. MARINE. M O N E Y. The 2 nd Annual Marine Money London Ship Finance Forum. At The Dorchester, Park Lane Thursday, 20 January 2011. Index. Current State of Global Ship Finance Industry 4

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  1. KOREA A Dawning Ship Finance Exporter Meriel Partners MARINE M O N E Y The 2nd Annual Marine Money London Ship Finance Forum At The Dorchester, Park Lane Thursday, 20 January 2011

  2. Index Current State of Global Ship Finance Industry 4 Korea’s Position in the Maritime Industry 6 The Landscape of Ship Finance in Korea 11 Institutional Investors in Korea 21 Closing Remarks 26 Contact 30 2

  3. Disclaimer Any and all information and opinions contained herein are as of the date of this material and the Firm does not undertake any obligation to update them. All market prices, data and other information are not warranted as to the completeness or accuracy and are subject to change without notice. Past performance is not indicative of future results, and the Firm is not providing investment advice through this material. This material does not take into account individual client circumstances, objectives or needs. In reaching a determination as to the appropriateness of any proposed transaction or strategy, readers should undertake a thorough independent review of the legal, regulatory, credit, accounting and economic consequences of such transaction in relation to their particular circumstances and make their own independent decisions. 3

  4. I. Current State of Global Ship Finance Industry

  5. Current State of GlobalShip Finance Industry • Since the 2008 financial crisis, the shipping industry has been undergoing the shortage of capital Demand and Supply of Shipping Loan [US$ billion] US$ billion Liquidity Shortage !!!! Source: Deallogic, Clarksons 5

  6. II. Korea’s Position in the Maritime Industry

  7. Korea’s GDP Ranking • Korea ranked the 16th largest country in terms of GDP with US$832.5 billion in 2009 US$ billion Rank #16; US$832.5 billion 7 Source: IMF

  8. The 2nd Largest Shipbuilding Nation • Current orderbook at Korean shipyards is 45.3 million CGT • On a value basis, Korea is the world’s largest at approximately US$143 billion (36.5% of global orderbook), followed by China with US$123 billion Orderbook by Country Value of Orderbook by Country 2010 [US$ billion] million CGT Combined figure of China, Korea and Japan represents 85% of the World’s total orderbook 8 Source: Clarkson (Dec 2010)

  9. The 6th Largest Shipowning Nation • As of Dec. 2009, Korean shipowners owned 1,235 Vessels totaling 54.1 million DWT • Korea has 181 shipowners registered with the Korean Shipowner’s Association as of Jan 2011 Korea’s Shipowning Position in the World million DWT 9 Source: Review of Maritime Transport 2010, UNCTAD

  10. The 3rd Largest Importer of Major Bulk Cargo • Korea is the 3rd largest importer of iron ore and thermal & coking coal, and estimated to import in total 54.6 million tons of iron ore and 114.8 million tons of coal in 2010 Seaborne Iron Ore Import 2010 (E) Seaborne Coal Import 2010 (E) million tonnes million tonnes 650 ~ 613.4 Source: Clarksons

  11. III. The Landscape of Ship Finance in Korea

  12. History of Ship Finance in Korea : Pre - SIC Pre - SIC Post - SIC Asia Financial Crisis SIC Act Enactment Shipping Market Collapse Japanese Trading House Restructuring Sold 112 ships Commercial Banks Leasing Co’s Korea Trading Co. Government Support

  13. The SIC Act In order to support an ailing domestic maritime industry, the Korean government designed a tax incentivized funding structure and legislated the SIC Act (Shipping Investment Company Act) in September 2002 The objective of SIC Act is to “establish the groundwork for the development of the maritime industry and ultimately contribute to the development of the national economy.” The Act provides certain tax savings on the investment to Retail Investors. In addition, it allows those Funds raised by the licensed SIC Fund Managers to be listed in Korea Stock Exchange for further liquidity 13

  14. SIC Act Tax Incentive Retail Investors Up to the amount of US$270,000: tax free Up to the amount of US$270,000: 5% tax Up to the amount of US$90,000: 5% tax ? 2009~2010 2011~2013 Jan 2014 2004~2008 Institutional Investors No Tax Incentive to Institutional Investors 14

  15. History of Ship Finance in Korea : Post - SIC Post - SIC Pre – SIC SIC Act Enactment Shipping Market Collapse Asia Financial Crisis SICs Japanese Trading House Commercial Banks Restructuring Sold 112 ships Leasing Co’s Institutional Investors Korea Trading Co. Government Support Government Support Commercial Banks Leasing

  16. Ship Funds Placed In Korea Since 2004 • For the first 5 years since the enactment of SIC Act between 2004 and 2008, average of US$175 million was raised in local market for shipping transactions • However, the amount had tripled in 2009 to US$517 million and increased over 5 times in 2010 to US$900 million US$ million Source : SIC Fund Managers, Meriel

  17. Placement Method & Tranche • Due to decreasing tax benefit allowed by the SIC Act, the more transactions are being placed through private placements, i.e. directly with end-investors rather than through SIC Managers • In addition, investors began to participate more in equity or mezzanine tranche with upside sharing Private Placement Investor Participation by Tranche Mezzanine Junior Senior Equity Source : SIC Fund Managers Report, Meriel

  18. Transactions For Foreign Owners Arranged by Meriel Partners Singapore (Bulker) US (Bulker) China (Bulker) Swiss (Container) Singapore (DSV) US (Bulker) Greece (Szmx T) Indonesia (Chem T) Taiwan (Bulker) Venezuela (Barge) US (Bulker) 2010 2008 2011 (E) 2007 2009 2006 Public Private

  19. Historical Yield of Korea Ship Funds • The main factor affecting pricing of Korean ship funds is the local bond yields % Source : FISIS (Financial Statistics Information System)

  20. Active Ship Finance Players in Korea • No longer are shipping investments coming only from KDB or KAMCO Funds; Korean Pension Funds, Insurance Companies as well as Savings Banks are approaching investments within the shipping sector as real investment opportunities SICAct Institutional Investors Trading Houses Commercial Banks 2002

  21. V. Institutional Investors in Korea

  22. Overview of Institutional Investors In Korea • Combined asset of major institutional investors in Korea is approx US$756 billion as of March 2010 • 9 Pension Funds manage US$295 billion and 42 Insurance Companies manage assets totaling US$390 billion World’s Institutional Investors Major Institutional Investors In Korea US$ billion OECD Total US$69.4 trillion 22 Source:KOFIA(Korea Financial Investment Association), Mar. 2010

  23. Pension Funds • The following illustrates the historical portfolio composition of three major Pension Funds in Korea, which represent more than 90% of the total Pension Funds in asset size • More than 80% of portfolio is invested in Bonds Others Stocks US$ billion Bonds Alternative Investments 23 Source : National Pension Service, The Korea Teachers Pension, Government Employees Pension Service

  24. Insurance Companies • The following represents the portfolio composition of all life and non-life insurance companies in Korea over the past 6 years • Majority of the portfolio is invested in debt and equity securities as well as loans Others Loans US$ billion Securities Alternative Investments 24 Source : FISIS (Financial statistics Information system)

  25. Substantial Increase in Alternative Investments • Alternative investments of both Pension Funds and Insurance companies have increased substantially over the past years 29.7% US$ billion 25 Source : FISIS (Financial Statistics Information System), Marine Money Asia

  26. VI. Closing Remarks

  27. Korea, A Dawning Ship Finance Exporter Success Story Competitors made money in shipping and boss pushes Diversification Korean Institutional investors are strategically increasing alternative investments where shipping is classified Less Competition Local real estate market, the main areas for alternative investment area to Investors, hasn’t recovered Counter-Cyclical Investment Opportunity People remember those who bought a landmark building in Seoul during Asian financial crisis and made huge profit Familiarity Over the past years, investors have accumulated knowledge and experience in shipping

  28. Is Ready To Provide Capital

  29. What you need is The Right Partner MerielPartners

  30. Contact MerielPartners #1602, Boutique MONACO 1316-5, Seocho-dong, Seocho-gu Seoul, South KoreaTel: +82 (0)70-8275-4440 Fax: +82 (0)2-3476-8444

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