[Federal Register Volume 75, Number 126 (Thursday, July 1, 2010)]
[Notices]
[Pages 38158-38160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15999]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29332; 812-13752]
Korea Finance Corporation; Notice of Application
June 25, 2010.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from all
provisions of the Act.
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Applicant: Korea Finance Corporation (``Applicant'').
SUMMARY: Summary of Application: Applicant, a policy finance
institution
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established by the government of the Republic of Korea (the ``Korean
Government'') requests an order exempting it from all provisions of the
Act in connection with the offer and sale of its debt securities in the
United States (``Debt Securities'').
DATES: Filing Dates: The application was filed on February 8, 2010, and
amended on May 11, 2010 and June 25, 2010.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 pm on July 19, 2010, and should be accompanied by proof of service
on applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicant, 16 Yeouido-dong,
Youngdeungpo-gu, Seoul 150-873, Republic of Korea.
FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at
(202) 551-6915, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicant's Representations
1. Applicant is a government-owned policy finance institution
established by the Korean Government on October 28, 2009, pursuant to
the Korea Finance Corporation Act (the ``KoFC Act''). The Korean
Government established Applicant in order to strengthen national
competitiveness, to promote job growth in the Republic of Korea
(``Korea''), and to contribute to the sound growth of the financial
markets and the national economy of Korea. Applicant operates mainly by
borrowing in the Korean and international capital markets, or from the
Korean Government and the Bank of Korea, the central bank of Korea, and
lending to borrowers in Korea. A majority of Applicant's assets
currently consist of equity securities of government-controlled
enterprises, equity securities of private sector companies acquired
during previous restructuring programs, loans and debt securities.
Since such securities and loans could be considered ``investment
securities'' within the meaning of section 3(a)(1)(C) of the Act,
Applicant may be considered an investment company, and it requests an
exemption from all provisions of the Act.
2. Under the KoFC Act, Applicant provides funds for the growth of
small and medium-sized enterprises (``SMEs''), development of national
and regional infrastructure, urgent financial support necessary for the
stabilization of financial markets in Korea, development of new growth
engine industries and facilitation of sustainable growth in Korea.
Applicant may provide funds to these areas by engaging in certain
activities including: providing loans; investing in securities;
guaranteeing indebtedness; securitization of credit risk; borrowing
from the Korean Government, the Bank of Korea and other financial
institutions; borrowing from overseas; and issuing bonds and other
securities. Lending constitutes the largest part of Applicant's
operations, with on-lending and direct loans, which include equipment
and project loans and working capital loans, comprising approximately
64% of Applicant's business operations from inception on October 28,
2009, through December 31, 2009.\1\ Since Applicant plans to focus on
lending as its primary channel of providing funds, the percentage of
loans among its total assets is expected to grow significantly in the
near future. Applicant currently does not plan to acquire or trade debt
securities in the secondary market.
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\1\ On-lending is a form of indirect financing where the
responsibility for repayment to Applicant rests with an intermediary
financial institution, who on-lends the funds provided by Applicant
to an industrial borrower.
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3. Applicant is succeeding to the policy bank role of the Korea
Development Bank (``KDB''), a government-owned financial institution,
which has been the leading bank in Korea with respect to the provision
of long-term financing for projects designed to assist the nation's
economic growth and development. Under the Korean Government's plan to
transfer the national policy and development bank role from KDB to
Applicant, the Korean Government in October 2009 established Applicant
and transferred 94.27% of its interest in KDB to Applicant as a capital
contribution. The Korean Government owns all of Applicant's paid in
capital as required by the KoFC Act. In addition to making capital
contributions, the Korean Government may directly support Applicant's
financing activities under the KoFC Act by: (a) Lending Applicant funds
to on-lend, (b) allowing Applicant to borrow from the Bank of Korea,
and (c) guaranteeing, subject to approval by the National Assembly,
Applicant's overseas borrowings and debt securities.
4. Applicant is subject to extensive oversight, supervision and
regulation by the Korean Government, primarily by the Financial
Services Commission of Korea (the ``FSC'').\2\ The KoFC Act and the
Enforcement Decree of the Korea Finance Corporation Act (the ``KoFC
Decree'') set forth the powers, privileges, government supervision and
operating guidelines for Applicant. Under the KoFC Act, the president,
all directors, the auditor and all members of the Steering Committee of
Applicant are appointed by the Korean Government. Under the KoFC Act,
the KoFC Decree and the FSC's Supervisory Regulations on Korea Finance
Corporation: (a) Applicant must submit its proposed business plan and
annual budget to the FSC for approval, (b) Applicant must submit its
financial statements to the Minister of Strategy and Finance for
approval and further examination by the Board of Audit and Inspection
of Korea, (c) the FSC must approve Applicant's operating manual, (d)
the FSC has broad authority to require reports from Applicant and to
examine its books, records and other documents, (e) the FSC may
supervise Applicant's operations to ensure managerial soundness, (f)
the Minister of Strategy and Finance may make a request to the FSC as
necessary for the supervision of Applicant's operations, and (g)
Applicant may amend its Articles of Incorporation only with the
approval of the FSC.
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\2\ The FSC is the governmental agency responsible for the
overall supervision of the Korean banking industry.
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5. The FSC's supervision of Applicant's managerial soundness
closely parallels the FSC's supervision of the activities of commercial
banks in Korea. As described more fully in the application, Applicant
and commercial banks in Korea are subject to similar restrictions on
lending to single borrowers, restrictions on equity investments in
single entities, restrictions on investments in securities and other
assets, regulations on capital adequacy ratios and liquidity ratios,
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regulations on foreign currency assets and liabilities, standards for
possible loan losses, and accounting principles. The Korean Government
also supports Applicant's operations pursuant to Articles 30 and 31 of
the KoFC Act which include the requirements that at least 20% of
Applicant's annual net profit to be retained as reserve before it can
be distributed to the Korean Government, and obligates the Korean
Government to replenish any deficit that arises if Applicant's reserve
is insufficient to cover its annual net losses.
6. Applicant proposes to offer and sell in the United States Debt
Securities from time to time. The Debt Securities will be direct,
unsecured obligations of Applicant and rank pari passu among themselves
and with all other unsecured indebtedness of Applicant for moneys
borrowed. Any such offering may be registered under the Securities Act
or be made pursuant to an exemption from the registration requirements
of the Securities Act. The offer and sale of such Debt Securities will
provide Applicant with an alternate source of funding to supplement its
borrowing in Korea and non-U.S. international capital markets.
Applicant will use the proceeds of the sale of the Debt Securities to
provide funds for its general operations including extending loans.
Applicant's Legal Analysis
1. Section 3(a)(1)(C) of the Act defines an investment company to
include any issuer engaged in the business of investing, reinvesting,
owning, holding or trading in securities, and that owns or proposes to
acquire investment securities having a value exceeding 40% of the
issuer's total assets. Section 3(a)(2) of the Act defines ``investment
securities'' to include all securities except Government securities,
securities issued by employees' securities companies, and securities
issued by majority-owned subsidiaries of the owner which (a) are not
investment companies, and (b) are not relying on the exclusions from
the definition of investment company in section 3(c)(1) or 3(c)(7) of
the Act.
2. Applicant states that as of December 31, 2009, approximately
43.9% of its assets consisted of equity securities issued by entities
that are not majority-owned by Applicant, approximately 10.7% of its
assets consisted of obligations of borrowers to repay loans, and
approximately 4.7% of its assets consisted of other debt securities.\3\
Such obligations and securities could be considered ``investment
securities'' within the meaning of section 3(a)(2) of the Act. As a
result, Applicant states that it could be deemed to be an ``investment
company'' under section 3(a)(1)(C) of the Act.
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\3\ In connection with the transfer of the policy and
development bank roles to Applicant, the Korean government
transferred to Applicant KDB's holdings in certain government-
controlled companies as well as holdings in certain private sector
companies acquired during previous restructuring programs. Applicant
plans to focus on lending as its primary channel of providing funds
and expects the percentage of loans among its total assets to grow
significantly in the near future.
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3. Section 6(c) of the Act provides, in relevant part, that the
Commission, by order upon application, may conditionally or
unconditionally exempt any person, security, or transaction from any
provision of the Act, if and to the extent necessary or appropriate in
the public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act.
4. Rule 3a-6 under the Act excludes foreign banks from the
definition of an investment company under the Act. A ``foreign bank''
is defined in the rule to include a banking institution ``engaged
substantially in commercial banking activity'' which in turn is defined
to include ``extending commercial and other types of credit, and
accepting demand and other types of deposits.'' Applicant states that
as a special policy finance institution that is not considered a
commercial bank under Korean law, it is not permitted to accept
``demand and other types of deposits.'' Therefore, Applicant states
that it is not eligible for the exemption provided by rule 3a-6 under
the Act. Applicant argues that it is functionally equivalent to a
foreign bank because it offers financial services and issues financial
products similar to those offered and issued by traditional foreign
banks, and it is subject to extensive oversight, supervision and
regulation by the Korean Government.
5. Applicant also believes that the rationale of Congress and the
Commission in promulgating rules under the Act in exempting foreign
financial institutions applies to Applicant. Applicant is subject to
extensive oversight, supervision and regulation by the Korean
Government, particularly the FSC. The scope of Applicant's business
activities is prescribed by the KoFC Act and the FSC must approve
Applicant's annual business plans, annual budget and operating manual.
Moreover, as discussed above, the FSC supervises Applicant's operations
to ensure managerial soundness by regulating its lending activities,
restricting its investment in securities and requiring Applicant to
comply with the same capital adequacy requirement applicable to Korean
commercial banks. Applicant represents that its operations do not lend
themselves to the abuses against which the Act is directed, and states
that it believes it satisfies the standards for relief under section
6(c) of the Act.
Applicant's Conditions
Applicant agrees that the order granting the requested relief will
be subject to the following conditions:
1. In connection with any offering by Applicant of Debt Securities
in the United States, Applicant will appoint an agent in the United
States to accept service of process in any suit, action or proceeding
brought with respect to such Debt Securities instituted in any State or
Federal court in the Borough of Manhattan, The City of New York, New
York. Applicant will expressly submit to the jurisdiction of the New
York State and United States Federal courts sitting in the Borough of
Manhattan, The City of New York, New York with respect to any such
suit, action or proceeding. Applicant will also waive the defense of an
inconvenient forum to the maintenance of any such action or proceeding.
Such appointment of an agent to accept service of process and such
consent to jurisdiction shall be irrevocable until all amounts due and
to become due in respect thereof have been paid. No such submission to
jurisdiction or appointment of agent for service of process will affect
the right of a holder of any such security to bring suit in any court
which shall have jurisdiction over Applicant by virtue of the offer and
sale of such securities or otherwise.
2. Applicant's activities will conform in all material respects to
the activities described in the application.
3. Applicant will rely on the order only so long as it is regulated
by the Korean Government, the FSC and the other applicable Korean
regulatory authorities, as described in the application.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15999 Filed 6-30-10; 8:45 am]
BILLING CODE 8010-01-P