Improve Korea Proposals to the Korean National Pension Service - PowerPoint PPT Presentation

Improve Korea Proposals to the Korean National Pension Service

IMPORTANT DISCLOSURES This presentation is published by Dalton Investments LLC solely for informational purposes and is not, and may not be construed as, investment, financial, legal, tax or other advice. This presentation has been compiled based on publicly available information (which has not been separately verified by Dalton Investments) and does not: (i) purport to be complete or comprehensive; (ii) constitute an agreement, offer, a solicitation of an offer, or any advice or recommendation to enter into or conclude any transaction or take or refrain from taking any other course of action (whether on the terms shown herein or otherwise); or (iii) constitute proxy solicitation or any other similar form of activity, or any advice or recommendation to take or refrain from taking any action or do or refrain from doing any act which would otherwise constitute proxy solicitation or any other similar form of activity. The market data contained in or utilized for the purposes of preparing this presentation is (unless otherwise specified) as at the end of trading hours on December 31, 2018. Changes may have occurred or may occur with respect to such market data and we are not under any obligation to provide any updated or additional information or to correct any inaccuracies in this presentation. The information herein contains “forward - looking statements.” Specific forward -looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “submits,” “ ant icipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could” or the negative of such terms or other variations on such terms or compa rable terminology. Similarly, statements that describe objectives, plans or goals are forward-looking. Any forward-looking statements are based on current intent, belief, expectations, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Many of the statements in this presentation are our beliefs, which are based on its own analysis of publicly available information. Any representation, statement or opinion expressed or implied in this presentation is provided in good faith but only on the basis that no reliance will be placed on any of the contents herein. You should obtain your own professional advice and conduct your own independent evaluation with respect to the subject matter herein. We expressly disclaim any responsibility or liability for any loss howsoever arising from any use of or reliance on this presentation or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this presentation. In respect of the information and materials which have been prepared by us and contained herein, in the event of any inconsistency between the English language version and the Korean language version, the meaning of the English language version shall prevail. Jan 2019 Page 1

IMPORTANT DISCLOSURES This document is provided for informational purposes only, and does not constitute a solicitation of any shares in any investment vehicle managed by Dalton Investments LLC. Such solicitations can only be made to qualified investors by means of the private placement memorandums, which describe, among other things, the risks of making an investment. Additionally, this presentation does not constitute investment advice of any kind. All of the information in this document relating to Dalton Investments LLC or its affiliates (collectively, “ Dalton ” or the “ Firm ”) is communicated solely by Dalton, 1601 Cloverfield Boulevard, Suite 5050 N, Santa Monica, CA 90404, regulated by the U.S. Securities and Exchange Commission (SEC). SEC registration does not imply SEC endorsement. No representation or warranty can be given with respect to the accuracy or completeness of the information, or with respect to the terms of any future offer of transactions conforming to the terms hereof. Certain assumptions may have been made in the analysis which resulted in any information and returns/results detailed herein. No representation is made that any results/returns indicated will be achieved or that all assumptions in achieving these returns have been considered or stated. Additional information is available on request. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on market conditions. Unless otherwise indicated, figures presented are preliminary, unaudited, subject to change and do not constitute Dalton’s standard books and records. Any estimates, projections or predictions (including in tabular form) given in this communication are intended to be forward-looking statements. Although Dalton believes that the expectations in such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such estimates are subject to actual known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date of this communication. Dalton expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in its expectations or any change in circumstances upon which such statement is based. Jan 2019 Page 2

The National Pension Service (NPS) is one of the largest shareholders of Korean stocks and Steward of Korean people’s pensions NPS total assets $570B* Domestic Equity Others • $97B invested in domestic equity Representing 7% of Korean stock market • Ownership > 5% in 340 companies • Ownership > 10% in 130 companies • 17% Korea National Pension Fund Source: Korea National Pension Service Investment Management; Meritz Securities *As of Oct. 31, 2018 Jan 2019 Page 3

Proposal 1: Global Standards Conforming, Sustainable Changes I. Focus on ensuring any changes (e.g., payout increase) are measuring up to global standards and are sustainable o Most Korean companies improve their payout very gradually, comparing themselves only to Korean peers. The NPS should encourage companies to benchmark their payout policies to global standards o The NPS also should encourage changing the compensation and performance structure of the Korean companies’ executives to align their interests with those of all shareholders (including minority shareholders) Jan 2019 Page 4

Align Interests of Management with Those of Shareholders • Set core key performance indicators for management evaluation and compensation, including long-term “economic value added ”, return on capital, total shareholder returns (share price appreciation + dividend + share repurchase & cancellation) • Compensate management primarily through performance based compensation with > 50% of performance based compensation in the form of stock or option awards • Target management ownership of shares at > 5x annual salary • Tie management’s performance based compensation to long-term share price changes The goal is for management to have “skin in the game” Jan 2019 Page 5

Proposal 2: Active Exercise of Shareholder Rights II. Actively exercise shareholder rights as steward of the people’s capital by: o Maintaining independence from the Government and other institutions o Hiring highly-qualified professionals and experts in the investment field o More actively exercising shareholder rights, particularly in light of the severely distorted nature of the Korean equity markets Jan 2019 Page 6

Proposal 3: Focus on Capital Allocation III. Focus on overall capital allocation and planning of companies to maximize long- term “economic value added” for all shareholders by: o Pressing companies, as a large shareholder, to focus on maximizing long-term “economic value added” o Checking capital allocations that prioritize the interests of affiliates and corporate groups over those of company’s shareholders o Reviewing capital efficiency through the separation of actually-employed capital and unemployed capital o Assessing the appropriate level of total payout by companies to shareholders Jan 2019 Page 7

Proposal 4: Cash Capacity IV. Focus on cash capacity to improve ways to identify companies that need to increase total payout o Rather than focusing on whether the recent dividend payout ratio and dividend yield are below the minimum level, the NPS should focus on a company’s idle cash accumulated over the past years and its ability to generate cash Jan 2019 Page 8

Companies with Excessive Cash Yet to be Targeted by the NPS Net Cash* / Total Equity Estimates (As of 1H ’18, Consolidated) 100% Only these companies seem to be targeted; many other potential candidates 50% 0% *Net cash estimated excluding stake values in key subsidiaries ( e.g. , for Source: Korea Financial Supervisory Services DART – Quarterly Reports group ownership) and including net cash portion of stakes in subsidiaries Jan 2019 Page 9