To date, most issuance of bonds in the Korean capital markets has been focused on the public market, but in regard to issuance of bonds in the public market, there is an obligation to file a securities registration statement for investor protection purposes and there are broad disclosure obligations even during the period of secondary distribution and trading of such securities.

Qualified Institutional Buyers (“QIBs”) are capable of managing investment risks for themselves and thus may not require the level of investors protection under the public offering while domestic small and medium enterprises or foreign companies in Korea with demand for issuance of bonds had the heavy burden of having to file a securities registration statement and comply with public disclosure obligations relating to issuance of bonds in the public market.

As a result, there is high demand on both sides, by the issuers and the investors who qualify as QIBs, for securities that are privately placed, distributed to and traded among QIBs only (“QIB Securities”). This is due to the advantage of domestic companies with asset size not exceeding a certain threshold and all foreign companies being able to conveniently issue securities with minimum disclosure and being exempt from stringent public disclosure obligations, and QIBs being able to directly invest in foreign companies based on various investments opportunities through its own risk assessments.
Furthermore, this offers the licensed dealers or brokers of the securities the opportunity to acquire or arrange for the placement of QIB Securities issued by eligible domestic or foreign companies. Issuance of QIB Securities had been permitted even in the past, but only companies with assets of less than KRW500 billion (approximately US$450 million) were permitted to issue such QIB Securities and the trading platform for such QIB Securities were limited to the FreeBond system only, and as a result, there had been only one case of issuance of QIB Securities.

This article summarizes the main features of the newly introduced system for issuance of QIB Securities, focusing on practical matters regarding the issuance of QIB Securities by foreign companies under a Global Medium Term Note (“GMTN”) program.

Relevant Laws and Regulations

As the reenactment and amendment of the applicable regulations on the issuance of QIB Securities were completed, issuance of QIB Securities registered with the Korea Financial Investment Association (“KOFIA”) became possible since August 1, 2016.

  • Amendment of Items 4 and 5 of Article 2-2 (2) of the Regulations on Issuance, Public Disclosure, Etc. of Securities, amended June 28, 2016: QIB Securities excluded from application of public offering.
  • Enactment of Articles 2(3) and 2(4) of the Detailed Regulations on Issuance, Public Disclosure, Etc. of Securities, newly enacted on June 28, 2016: Payment and settlement through only licensed dealers or brokers; QIBs required to open an account with the Korea Securities Depository (the “KSD”) to manage their own shares (“Own Shares Account”).
  • Enactment of Article 3-14 of the Regulation on Financial Investment Business, enacted on June 28, 2016: QIB private placement bonds invested by dealers or brokers are acknowledged as deductible items in the calculation formula for business net assets, which is equal to ‘(total amount of assets – total amount of debts) – deductible items + additional items’.
  • Enactment of the Regulation on Registration and Management, Etc. of QIB Securities (“QIB Regulation”), enacted on June 21, 2016.
  • Enactment of the Detailed Regulations on QIB Regulation (“Detailed QIB Regulations”), enacted on July 28, 2016.

Main Procedures for the Issuance

Companies contemplating issuance of QIB Securities are required to, other than the internal authorization and issuance process, need to undergo procedures prescribed under the Foreign Exchange Transactions Regulation, such as reporting to the Ministry of Strategy and Finance, register or shelf register QIB Securities with KOFIA, obtain bond codes from the Korea Exchange (the “KRX”), and register for the deposit and settlement services of KSD by designating the KSD as their bond registration institution.

  • A QIB wishing to trade QIB Securities is required to register itself as a QIB with KOFIA and open an Own Share Account with the KSD.
  • Financial investment companies are not obligated to acquire the QIB Securities and the QIB Securities may be acquired by any QIB at the time of issuance.

Registration of QIBs and QIB Securities with KOFIA

Registration of QIBs

  • Scope: Sovereign entities, listed companies, financial institutions, various finance related public companies, pension funds, collective investment vehicles, foreigners’ equivalent to domestic QIBs.
  • Period for completion of registration procedures: KOFIA shall register the QIB on the registry within two business days from the date of the application for registration by the QIB.
  • Documents for submission to KOFIA: Registration application form, corporate registry or its equivalent documents plus the classification of QIBs, the certificate of business registration and the certificate of foreign investment registration issued by the Financial Supervisory Services (the “FSS”), pursuant to the Detailed QIB Regulations.

Registration of QIB Securities

  • Issuer eligibility: Korean companies with assets of less than KRW 2 trillion as of the end of the previous fiscal year at the time of issuance. Foreign companies have no limit on their size of the assets.
  • Available types of QIB Securities: Corporate bonds, equity-related bonds such as convertible bonds, bonds with warrants, asset-backed securities, but excluding stocks.
  • Registrant: The issuer registers with KOFIA.
  • Documents for submission to KOFIA:

i. Registration application form
ii. Information relating to issuance of QIB Securities: General matters on the issuance, the major rights of securities, profiles of the issuer, the financial statements, legal opinion for a foreign company (in the case of asset-backed bonds, also profiles of the asset owner, the matters on the asset-backed assets, the matters on the asset securitization plan), pursuant to the Detailed QIB Regulations
iii. Minutes of the Board of Directors meetings
iv. Corporate registry
v. Credit report (in any) and the following additional documents pursuant to the Detailed QIB Regulations,
vi. The subscription agreement and/or the arrangement agreement
vii. The agency agreement for payment of principal and interest
viii. The permit, approval, application required by the Foreign Exchange Transactions Act or other regulations
ix. Other agreements executed with related authorities in relation to the securities issuance

  • Procedure: KOFIA lists the QIB Securities on the registry within two business days from the date of the application for registration, or rejects the application if determined to be not qualified.

** It is advisable to submit the application to KOFIA unofficially for its prior review approximately five days in advance, to gain time for corrections.

Shelf Registration (Program Registration)

Shelf registration, including the total amount of QIB Securities allowed, to be issued for a certain period.

  • Shelf registration is valid for one year and may be renewed.
  • With regard to the principal amount limit for the shelf registration, the principal amount of securities redeemed at maturity within the shelf registration period is again added to the issuable principal amount, subject to the outstanding principal amount being below the principal amount limit (this is different from the reported shelf principal amount in the shelf registration statement being exhausted with the issuance of the principal amount in the case of a public offering).
  • Documents for submission:

i.  Application for shelf registration
ii.  Shelf registration-related information: General matters regarding the shelf registration, major issues related to shelf registration of securities, profiles of the issuer, legal opinion by a legal advisor for a foreign company
iii.  Minutes of the Board of Directors meetings
iv.  Corporate registry or its equivalent document and additional documents pursuant to the Detailed QIB Regulations are same as the additional documents described in (6), (7), (8) and (9) under “— Registration of QIB Securities” above. It is not necessary to submit a credit report, but it will be recorded on the QIB Securities Registry when submitted.

** If a foreign issuer intends to have the option of issuing QIB Securities under its existing GMTN program, it would need to file an application for shelf registration of QIB Securities with KOFIA, in principle, disclosing all information relating to such GMTN program as amended and supplemented as required by KOFIA.

Disclosure of Information on QIB Securities

An issuer of QIB Securities is required to make public, through KOFIA’s website, certain minimal information as required under the Detailed QIB Regulations, such as type of securities, name of the issuer, issuance amount, issuance date, maturity date, nominal interest rate, currency, name of dealers and/or brokers(if any) and other necessary items.

Possibility of NCR Benefits to Financial Investment Companies

Obtaining a credit rating is not mandatory but if the QIB Securities invested by a financial investment company has a credit rating, and the issuance-related information is publicly disclosed as required by KOFIA, net capital ratio (“NCR”) benefits will be available.

Exceptional Procedures for the Issuance by Foreign Companies

  • The aforementioned documents may be submitted in English, and legal opinion by legal counsel needs to be attached.
  • Upon making the issuance-related information of QIB Securities public, foreign issuers are required to additionally submit its annual report to KOFIA and make it public within 120 days after the end of each fiscal year.

Merits of QIB Securities Compared to Publicly Offered and Privately Offered Securities

  • Compared to the case of publicly offered securities, public disclosure is simpler, cost is cheaper and examination period is shorter, being two days (in practice, approximately five days shorter than that for public offerings), but purchasers are limited to QIBs.
  • Compared to the case of privately offered securities, there is no need for the transfer restriction to 50 or more investors or the prohibition on splitting nominal value of the bonds into more than 50 certificates, thereby improving liquidity.

KSD as the Depository

The issuer is required to designate the KSD as the depository of the QIB Securities and register the details regarding the securities issued with the KSD.

Registration with the Ministry of Strategy and Finance

If a foreign company raises funds through issuance of bonds denominated in Korean Won or a foreign currency in Korea, the foreign company is required to register with the Ministry of Strategy and Finance under the Foreign Exchange Transactions Act (if there is a guarantee by Korean resident or a Korean financial institution, there would be need to further review relevant licenses, permit, approval, registration and/or filing procedures for the issuance of QIB Securities).

KRX Codes Numbers for the Bonds

The issuers of the bonds registered with the KSD are required to obtain KR standard codes from the KRX.

BKL’s Strengths

BKL has provided legal advice on various types of issuance of bonds both in the domestic and overseas capital markets. With regard to the newly introduced system for issuance of QIB Securities, BKL advised KOFIA on its preparation of the bill to improve the existing system, its enactment of the regulations relating to registration and management of QIB Securities and preparation of the relevant forms.
BKL also participated in all of the QIB task force meetings, led by KOFIA and consisting of domestic and foreign securities companies, asset management companies and the KSD, and provided legal advice and its opinions during the commenting process by the relevant parties in relation to the regulations and relevant forms.
As BKL has been directly involved in the introduction of the new system and related regulations, BKL is well placed to provide the best advisory services possible to its clients regarding legal issues and practical procedures needed for the issuance of QIB Securities.

* Nothing contained herein may in any way be construed as provision of a legal opinion on any specific securities issuance. This material is being provided as reference only to assist clients’ understanding about the topic discussed herein. For legal advice, please inquire with Bae, Kim & Lee LLC or other qualified counsel.


Eui Jong CHUNG
+82 2 3404 0139

Jong Baek PARK
+82 2 3404 0135