KOREAA Dawning Ship Finance Exporter

The 2nd Annual Marine Money

London Ship Finance Forum

At The Dorchester, Park LaneThursday, 20 January 2011

MARINEM O N E Y

Index

I. Current State of Global Ship Finance Industry 4

II. Korea’s Position in the Maritime Industry 6

III. The Landscape of Ship Finance in Korea 11

IV. Institutional Investors in Korea 21

V. Closing Remarks 26

Contact 30

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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.

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4

I. Current State of Global Ship Finance Industry

0

20

40

60

80

100

120

140

160

180

200

2005 2006 2007 2008 2009 2010 2011 2012 2013

Shipping Loan Volume Newbuild Deliveries + S&P Newbuild Deliveries

• Since the 2008 financial crisis, the shipping industry has been undergoing the shortage of capital

Source: Deallogic, Clarksons

Demand and Supply of Shipping Loan [US$ billion]

Current State of Global Ship Finance Industry

5

Liquidity Shortage !!!!

US$ billion

6

II. Korea’s Position in the Maritime Industry

Rank #16; US$832.5 billion

Korea’s GDP Ranking

7

• Korea ranked the 16th largest country in terms of GDP with US$832.5 billion in 2009

Source: IMF

US$ billion

Source: Clarkson (Dec 2010)

• 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]

The 2nd Largest Shipbuilding Nation

8

million CGT

Combined figure of China, Korea and Japan represents

85% of the World’s total orderbook

Source: Review of Maritime Transport 2010, UNCTAD

• 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

The 6th Largest Shipowning Nation

9

million DWT

~

•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)

Source: Clarksons

Seaborne Coal Import 2010 (E)

million tonnes million tonnes

The 3rd Largest Importer of Major Bulk Cargo

613.4

10

650

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III. The Landscape of Ship Finance in Korea

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Japanese Trading House

Commercial Banks

Asia Financial

Crisis

SIC Act Enactment

Restructuring

Sold 112 shipsLeasing Co’s

Korea Trading Co.Government

Support

History of Ship Finance in Korea : Pre - SIC

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Pre - SIC

Shipping Market Collapse

Post - SIC

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

The SIC Act

13

Retail Investors

Institutional Investors

Up to the amount of

US$270,000: tax free

2004~2008

Up to the amount of

US$270,000: 5% tax

2009~2010

Up to the amount of US$90,000:

5% tax

2011~2013

?

Jan 2014

No Tax Incentive to Institutional Investors

SIC Act Tax Incentive

14

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Asia Financial Crisis

SIC Act Enactment

Shipping Market Collapse

SICsRestructuring

Sold 112 ships

Institutional Investors

Leasing

Commercial Banks

Government Support

History of Ship Finance in Korea : Post - SIC

15

Post - SICPre – SIC

2004 2006 2008 2010

Source : SIC Fund Managers, Meriel

US

$ m

illio

n

• 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

Ship Funds Placed In Korea Since 2004

16

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

Investor Participation by Tranche

Source : SIC Fund Managers Report, Meriel

Private Placement

17

Equity

Mezzanine

Junior

Senior

2006 2008 2010 2011 (E)

Taiwan(Bulker)

US(Bulker)

Venezuela(Barge)

China(Bulker)

US(Bulker)

Swiss(Container)

2007 2009

Greece(Szmx T)

Singapore(Bulker)

Indonesia(Chem T)

Singapore(DSV)

Transactions For Foreign Owners

US(Bulker)

Arranged by Meriel Partners

Public Private

Source : FISIS (Financial Statistics Information System)

• The main factor affecting pricing of Korean ship funds is the local bond yields

Historical Yield of Korea Ship Funds

19

%

Active Ship Finance Players in Korea

2002

CommercialBanks

Trading Houses

InstitutionalInvestors

SIC Act

20

• 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

21

V. 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

Korea$0.7T , 1%

Luxembourg$2.8T , 4%

Germany$3.9T , 6%

United Kingdom$6.5T , 9%

Japan$8.7T , 12%

United States$29.7T , 43%

Others$17.13T , 25%

Major Institutional Investors In Korea

OECD Total US$69.4 trillion

Source: KOFIA(Korea Financial Investment Association), Mar. 2010

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50

100

150

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250

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400

Life Insurance Pension Non-life Insurance Mutual Savings Banks

Life Insurance Pension Non-life Insurance Mutual Savings Banks

Overview of Institutional Investors In Korea

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US$ billion

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50

100

150

200

250

300

2004 2005 2006 2007 2008 2009

• 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

US

$ b

illio

n

Alternative Investments

Bonds

Stocks

Others

Source : National Pension Service, The Korea Teachers Pension, Government Employees Pension Service

Pension Funds

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• 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

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50

100

150

200

250

300

350

400

450

2004 2005 2006 2007 2008 2009

Alternative Investments

Securities

Loans

Others

Source : FISIS (Financial statistics Information system)

US

$ b

illio

n

Insurance Companies

24

• Alternative investments of both Pension Funds and Insurance companies have increased substantially over the past years

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60

70

2004 2005 2006 2007 2008 2009

29.7%

Substantial Increase in Alternative Investments

Source : FISIS (Financial Statistics Information System), Marine Money Asia25

US

$ b

illio

n

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VI. Closing Remarks

27

Korea, A Dawning Ship Finance Exporter

Success StoryCompetitors made money

in shipping and boss pushes

Diversification Korean Institutional

investors are strategically increasing alternative

investments whereshipping is classified

Counter-Cyclical Investment Opportunity

People remember those who bought a landmark building in Seoul during Asian financial crisis and made huge profit

FamiliarityOver the past years, investors have

accumulated knowledge and experience in shipping

Less Competition Local real estate market, the main

areas for alternativeinvestment area to Investors, hasn’t

recovered

Is Ready To Provide Capital

Nationality of Shipowner (Borrower)

Any credible shipowner worldwide

Type of Assets Any type

Age Less than 15 year old

Investment Size Per Deal US$25 ~ US$250 million

Tranche

(Yield)

Senior to Equity

(7% ~ 12%+)

LTV Up to 100%

Investment Period 5~ 20 years

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Meriel Partners

The Right Partner

What you need is

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Meriel Partners

#1602, Boutique MONACO1316-5, Seocho-dong, Seocho-gu

Seoul, South Korea

Tel: +82 (0)70-8275-4440 Fax: +82 (0)2-3476-8444

Contact

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