Macquarie Korea Infrastructure Fund

Transcription

1 Macquarie Infrastructure and Real Assets (MIRA) Macquarie Korea Infrastructure Fund Investor Presentation October 2017

2 Important Notice DISCLAIMER This presentation and the information contained herein do not constitute any offer, solicitation, or advertisement of the securities of Macquarie Korea Infrastructure Fund (the MKIF ) and does not constitute solicitation as defined under the Financial Investment Services and Capital Markets Act of Korea. The MKIF does not have any intention to, and does not make, directly or indirectly, any offer or solicitation of its securities by this presentation. MKIF and Macquarie Korea Asset Management Co., Ltd.( MKAM ) are not authorised deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia) and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of MKIF/ MKAM. This presentation is not an offer for sale of the securities of MKIF in the United States except in transactions exempt from the registration requirements of the US Securities Act of 1933 and the US Investment Company Act of This document may not be distributed in the United States and the Shares will not be offered or sold to persons in the United States. This presentation does not constitute a prospectus or other offering circular, in whole or in part. Any decision to purchase securities in the context of the offering of securities, if any, should be made solely on the basis of information contained in a published prospectus or other offering circular issued by the MKIF in connection with such an offering. This presentation contains certain forward looking statements. These forward looking statements that include words or phrases such as the MKIF or its management believes, expects, anticipates, intends, plans, foresees, or other words or phrases of similar import. Similarly, statements that describe the MKIF s objectives, plans or goals also are forward-looking statements. All such forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Such forward-looking statements are made based on management s current expectations or beliefs as well as assumptions made by, and information currently available to, management. There is no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as of the date of this presentation. Investments in MKIF are subject to investment risk, including possible delays in repayment or loss of income and/or capital investment. Neither MKIF, nor any member of the Macquarie Group companies, including MKAM, guarantees the performance of MKIF, the repayment of capital or the payment of a particular rate of return on MKIF securities. PAGE 1

3 Contents 1 MKIF Overview A Leading Infrastructure Fund in Korea Fund Evolution Business Structure Portfolio Summary Concession Term and Government Support Period Financial Position Distribution Investment Highlights 2 3Q 2017 Key Performance 3Q 2017 Key Performance Financial Results Financial Position Statement Performance of the Toll Road Assets Busan New Port Phase 2-3 (BNP) The New Port 3 MKIF Share Offering & IBC Transaction MKIF Share Offering Transaction Highlights Asset Overview Historical Performance Growth Drivers Transaction Summary Investment Funding Investment Rationale A Appendix

4 1 MKIF Overview

5 A Leading Infrastructure Fund in Korea Established in 2002 / Listed on the Korea Exchange in 2006 Market capitalization of KRW ~3.0 trillion 1 Invests only in Korea as defined under the Korean PPI Act 2 Realized approximately ~5% distribution yield 3 in 2016 Credit rating of AA0 (Stable) 4 Key Shareholder Groups 5 Top Shareholders 6 International investors 21.8% Domestic institutions 48.5% 1. Newton Investment Management 8.2% 2. Hanwha General Insurance 7.2% 3. Shinyoung Asset Management 6.1% * Macquarie Group 3.6% Domestic Retails 29.7% 1. As at 27 October Act on Public Private Partnerships in Infrastructure ( PPI Act ) defines infrastructure sectors including roads, railways, ports, energy, airport, communication, water resources, etc distribution yield based on the year-end closing share price and the total amount of FY2016 distributions; historical performance does not guarantee future performance 4. Issuer credit rating by Korea Investors Service on 6 April 2017; commercial paper/short-term electronic bond rating by Korea Ratings on 7 April 2017; unsecured corporate bond rating by NICE Investors Service on 27 April As at 30 June Source: Financial Supervisory Service (over 5% holders and affiliates as at 30 September 2017) PAGE 4

6 Fund History Only listed infrastructure fund in Korea / Largest portfolio of toll roads in Asia Establishment/Listing 2002 / 2006 Mandate Core / Core+ (Korean only) Portfolio 11 toll roads/1 port (all concessions) Market capitalisation KRW ~3.0 trillion 1 (KOSPI top 88) MKIF history Pioneered best practice infrastructure fund management in Korea, serving as an education platform for local financial institutions 2002 MKIF established Capital raising and investing 2006 IPO & Listing 2007 ~ Active asset and capital management 2017 Share offering 1st raising of KRW 247 bn 19 investors (17 domestic) Investment in 14 toll roads & 1 subway line IPO (KRW 1.0 tn) 2 Dual listing on KRX and LSE 3 2 investments 4 / 4 divestments 5 7 fund-level refinancing and bond offering 6 12 project company-level refinancing & restructuring (including securitization) 7 1 Investment 4 Follow-on offering (KRW bn) 1. As at 27 October KRW 0.6 tn = issuance of new shares, KRW 0.4 tn = sale of old shares 5 dispute resolutions 8 3. MKIF delisted from LSE in March : BNP, 2013: BNP additional investment, 2017: IGB additional investment : New Daegu Busan Expressway, 2010: Seosuwon-Osan Pyungtaek Expressway, 2012: Daegu 4th Beltway East, 2013: Subway Line 9 6. Refer to the disclosures on MKIF website ( on 14 May 2007; 10 April 2009; 30 November 2009; 19 May 2011; 16 June 2011; 7 February 2014; and 26 May Refer to the disclosures on MKIF website ( on 14 February 2007 (Daegu 4th Beltway East); 7 January 2008 (BYTL); 15 December 2008 (WIC); 26 March 2009 (IGB); 18 March 2010 (CNEC), 18 November 2010 (MCB); 24 August 2015 (NAHC); 23 October 2015 (YSE); 14 January 2016 (WIC); 16 December 2016 (KBICL); 02 January 2017 (MCB), 14 August 2017 (IGB) 8. Refer to the disclosures on MKIF website ( on 10 October 2014 (SICL&BYTL); 6 April 2015 (KBICL); 3 June 2016 (SICL&BYTL); 10 November 2016 (SICL); and 16 December 2016 (KBICL) PAGE 5

7 Business Structure MKIF is a holding company of 12 infrastructure project companies Active management of the underlying project companies 1 Fund is managed by Macquarie Korea Asset Management Co., Ltd. ( MKAM ) MKIF corporate tax exempted when 90% or more of its distributable earnings is distributed Underlying Project Companies Baekyang Tunnel Ltd. (As at 30 September 2017) MKIF Shareholding 100% Shareholders Kwangju Beltway Investment Co., Ltd. New Airport Hiway Co., Ltd. 100% 24.1% Corporate Debt Credit facility (KRW 250 bn) 2 Corporate bonds (KRW 250 bn) 3 Invest MKIF Distribute Management Agreement Invests in: Equity Subordinated debt Senior debt Receives: Interest / Principal Dividend Soojungsan Investment Co., Ltd. Cheonan Nonsan Expressway Co., Ltd. Woomyunsan Infraway Co., Ltd. Kwangju Ring Road Company Ltd. MCB Co., Ltd. Gyeogsu Highway Co., Ltd. 100% 60% 36% 75% 70% 43.75% MKAM (Manager) Seoul Chuncheon Expressway Co., Ltd. Incheon Bridge Co., Ltd. 15% 64% 1. MKIF-invested project companies 2. Out of KRW 250 bn credit facility, KRW 22.8 bn is drawn 3. KRW 60 bn of short-term electronic bonds (underwritten until May 2018) & KRW 190 bn of 7-yr maturity bonds (maturity date of May 2018) BNCT Co., Ltd. 30% PAGE 6

8 Portfolio Summary 1 KRW 1.73 trillion invested and deployed across 12 infrastructure assets in Korea Weighted average age of the portfolio is 10.9 years (out of weighted average concession term of 29.4 years) Ratio of central and local government involvement is 72:28 1 (As at 30 September 2017) Portfolio composition by asset 1 Portfolio composition by type 1 and phase 1,2 BNP 17.9% Port 17.9% BYTL 0.1% KBICL 13.9% NAHC 4.3% SICL 3.8% Sn Debt 9.9% Mature 13.8% Ramp-Up 17.9% Equity 27.8% Asset names Baekyang Tunnel Gwangju Second Beltway, Section 1 Incheon International Airport Expressway Soojungsan Tunnel Abbrv. BYTL KBICL NAHC SICL Cheonan-Nonsan Expressway CNEC IGB 17.1% SCE 7.9% YSE 8.7% Toll Road 82.1% MCB 6.5% KRRC 3.0% WIC 1.2% CNEC 15.6% Sub Debt 62.3% Growth 68.3% Woomyunsan Tunnel Gwangju Second Beltway, Section 3-1 Machang Bridge Yongin-Seoul Expressway Seoul-Chuncheon Expressway Incheon Grand Bridge Busan New Port Phase 2-3 WIC KRRC MCB YSE SCE IGB BNP 1. On MKIF investment amount basis 2. Ramp-up (operating life 10 years and YTD average daily traffic volume growth rate previous year s CPI growth rate+7%): BNP Growth (YTD average daily traffic volume growth rate previous year s CPI growth rate+3%, exclusive of the ramp-up assets): KBICL, NAHC, CNEC, KRRC, MCB, SCE, IGB Mature (YTD average daily traffic volume growth rate < previous year s CPI growth rate+3%): BYTL, SICL, WIC, YSE (CPI=consumer price index of Korea as published on CPI growth rate=1.0%) PAGE 7

9 Concession Term and Government Support Period (As at 30 September 2017) Weighted average 1 remaining life of ~19 years under the concession agreements 10 toll road companies are entitled to receive government support payments 2 from their respective authorities for next ~7 years on average All underlying project companies are protected under the early termination support payment provision Relevant Authority (C) Central government (L) Local government Government support payment period 3 Concession term 3 Present Weighted average support payment period ~7 years Weighted average concession term ~19 years Early termination support payment 3,4 Baekyang Tunnel (L) Gwangju 2nd Beltway Sec 1 (L) Incheon Int l Airport Expressway (C) Soojungsan Tunnel (L) Cheonan-Nonsan Expressway (C) Woomyunsan Tunnel (L) Gwangju 2nd Beltway Sec 3-1 (L) Machang Bridge (L) Yongin-Seoul Expressway (C) Seoul-Chuncheon Expressway (C) Incheon Grand Bridge (C) Busan New Port Phase 2-3 (C) Weighted average based on MKIF investment amount 2. Revenue guarantee and cost compensation payments received from relevant authorities, toll freeze compensations related to the CPI growth, etc. 3. Government support and early termination payment provisions vary for each concession 4. Project companies have the right to receive payments if the relevant concession agreement is terminated prior to expiration of the concession term, including termination due to events attributable to the concession company, the relevant authority, or for events of force majeure PAGE 8

10 Financial Position (As at 30 September 2017) MKIF debt capped at 30% of its capital under PPI Act 1, with the current outstanding debt at KRW 273 billion out of KRW 500 billion limit under the existing loan agreements - KRW 23 billion drawn down from KRW 250 billion of credit facility limit - KRW 60 billion of electronic short-term bonds (underwritten till May 2018) & KRW 190 billion of 7-yr fixed rate bond (maturing in May 2018) Weighted average interest rate of MKIF debt is 3.06%, and remaining average maturity is ~1.0 years Project company-level debt is on the decline as senior debts are redeemed, and average remaining maturity 2 of external debt 3 is ~6.6 years Project company-level outstanding external debt balance 6 CASH 4 KRW bn (KRW bil) EXTERNAL DEBT AVERAGE MATURITY years GEARING % MKIF debt ceiling under PPI Act improved by KRW 43.4 bn post the capital raising in 3Q 2017, which resulted in the increase of MKIF capital from KRW 1,671 bn to KRW 1,816 bn 2. Average remaining maturity of external debt of the underlying project companies based on MKIF equity ownership 3. External debt of the underlying project companies is defined as the total debt of the underlying project companies minus: (i) borrowing from MKIF; (ii) borrowing from third parties with the same term as MKIF s; (iii) borrowing of which default risk and redemption obligation have been transferred to the relevant authority as a result of restructuring 4. Proportionately consolidated MKIF cash and cash equivalents (inclusive of MKIF cash and cash equivalents of KRW 22.1 bn) 5. Proportionately consolidated MKIF net debt / (proportionately consolidated MKIF net debt + average MKIF market capitalization for the previous 3 months) 6. Outstanding external debt balance of the underlying project companies based on respective MKIF equity ownership, assuming absence of additional restructuring or new investment PAGE 9

11 Distribution Distribution is paid semi-annually (record dates at the end of June and December) Distribution floor is higher of taxable income or 100% of distributable accounting income to maintain tax exempt status 2017 interim distribution of KRW 250 per share 1,2 (total amount of KRW 82.9 bn) was paid on 28 August 2017 Distribution history 3 (KRW / share) Total distribution Normalized profit One-off income 4 One-off loss (33) H H H H 254 2H (57) H 220 1H 210 1H 193 1H 210 1H 200 1H On 28 July 2017, MKIF Board of Directors approved the distribution of KRW 250 per share for the first half of The final distribution amount was determined based on the latest estimate of the earnings for the full year Total of KRW 250 per share should be accounted as distribution income in calculating dividend income tax and tax payable under the relevant Korean law. Investors are advised to consult their own tax advisors for the appropriate tax treatment of the distribution 3. Past result does not guarantee future performance 4. Includes over-distribution amount PAGE 10

12 Investment Highlights MKIF is structured to deliver long-term cash flow and income to investors via stable and growth-embedded portfolio - Stable, predictable, and inflation-linked income structure - Optimal capital structure of MKIF and continuous improvement in the financial position of project companies - Additional growth potential through (i) increase of ownership stake in the underlying project companies and (ii) new investment - Increase of shareholder return via enhanced portfolio value and sustainable distribution Project Company s Cash Flow 1 MKIF Strategy Increase Shareholder Return Revenue Senior debt service Sub-debt service OPEX & CAPEX Dividend to shareholders Maximize portfolio value Macquarie-managed fund Active asset management using experience and expertise in the infrastructure sector + Provide sustainable distribution Stable income structure of project companies Predictable cash flow and income to MKIF 1. Conceptual diagram, assuming the current portfolio remains unchanged; may be different from actual cash flow PAGE 11

13 2 3Q 2017 Key Performance

14 3Q 2017 Key Performance Additional capital restructuring of and additional investment in IBC 1 - MKIF successfully completed the capital restructuring of and additional investment in Incheon Bridge Co., Ltd. ( IBC ) (together the Transaction ), the concessionaire of Incheon Grand Bridge ( IGB ) - The Transaction primarily involved (i) refinancing of the existing debts, (ii) MKIF s share purchase of 23.03% equity interest, and (iii) a toll reduction - As a result of the Transaction, MKIF s investment in IBC increased from KRW billion to KRW billion Completion of MKIF s first follow-on offering 1 - MKIF also completed the issuance of 17,584,995 new common shares via a public offering (the Offering ), representing KRW billion at the proposed issue price of KRW 8,370 per share (the Offering Price ) - The Offering Price was determined based on one-day institutional book-building, representing 0% discount to the reference price 2 - The proceeds from the Offering was primarily used to fund the additional investment in IBC - The new shares were listed and started trading on the Korea Exchange on 27 September 2017 Solid operational performance - 3Q 2017 revenue and net income were KRW 52.0 billion and KRW 38.9 billion, respectively, which improved by 17.4% and 28.3% compared with the previous corresponding period ( pcp ) - 3Q 2017 average daily traffic volume and revenue 3 grew by 3.9% and 2.7%, respectively, on pcp - Busan New Port Phase 2-3 ( BNP ) handled 0.56 million TEU volume for the Quarter. Revenue and EBITDA increased by 14.8% and 12.1% on pcp Interim dividend from New Airport Hiway Co., Ltd. - The board of directors of New Airport Hiway Co., Ltd. approved an interim dividend of KRW 30.0 billion 4 in July This dividend represents ~KRW 21.8 per share 5 of incremental revenue income for MKIF in 3Q Refer to Section 3 of this Investor Presentation 2. A volume weighted average price over three trading days from 7-11 September On a weighted average basis based on the revenue size and MKIF s equity interest in each project company 4. The equity interest of MKIF in New Airport Hiway Co., Ltd. is 24.1%; occurrence of interim dividends in the future is expected to depend on the cash position, among others, of New Airport Hiway Co., Ltd. 5. Based on 332,223,906 shares outstanding (weighted average of 331,459,341 shares for pre follow-on offering period (88 days) and 349,044,336 shares for post follow-on offering period (4 days)) PAGE 13

15 Financial Results Non-consolidated 3Q 2017 and 3Q 2016 Revenue improved as a result of dividend income from New Airport Hiway Co., Ltd. in 3Q 2017 Improved revenue, together with lower expenses due to a decrease in management fee, resulted in an increase in net income for the Quarter 3Q 2017 (Jul Sep) 3Q 2016 (Jul Sep) % Change in recurring items Revenue 51,977 44, % Interest income 44,487 44,239 Dividend income 1 7,232 - Other income Expenses 13,032 13,903 (6.3%) Management fee 9,096 9,762 Performance fee - - Interest expense 3,346 3,620 Other fees and expenses Net income 38,945 30, % Normalised net income 3 38,945 30, % EPS (KRW per share) Normalised EPS (KRW per share) 3, (Unaudited financial information) (Unit: KRW million) 1. 3Q 2017: dividend income of KRW 7.2 bn from NAHC 2. 3Q 2017: prepayment fee of 0.2 bn from KBICL 3. Excludes one-off items: there are no on-off items in Q and Q Based on 332,223,906 shares outstanding (weighted average of 331,459,341 shares for pre follow-on offering period (88 days) and 349,044,336 shares for post follow-on offering period (4 days)) PAGE 14

16 Financial Results Non-consolidated 2017 YTD (Jan Sep) and 2016 YTD (Jan Sep) Revenue improved in 2017 compared with pcp mainly due to an increase in dividend income from New Airport Hiway Co., Ltd. and Cheonan-Nonsan Expressway Co., Ltd. Improved revenue, together with a considerable decrease in expenses mainly caused by the absence of performance fee in 2017, resulted in a substantial increase in net income for YTD (Jan Sep) 2016 YTD (Jan Sep) % Change in recurring items Revenue 191, , % Interest income 129, ,435 Dividend income 1 61,543 34,227 Other income ,707 Expenses 40,015 82,997 (51.8%) Management fee 27,218 28,328 Performance fee - 41,111 Interest expense 10,571 11,834 Other fees and expenses 2,226 1,724 Net income 151,956 92, % Normalised net income 3 151, , % EPS (KRW per share) Normalised EPS (KRW per share) 3, (Unaudited financial information) (Unit: KRW million) : dividend income of KRW 38.5 bn from NAHC and KRW 23.0 bn from CNEC / 2016: dividend income of KRW 24.1 bn from NAHC, KRW 10.1 bn from WIC restructuring : prepayment fee income of 0.2 bn from KBICL, etc. / 2016: prepayment fee income of 8.6 bn from WIC restructuring, etc. 3. Excludes one-off items (one-off income/expense, performance fee, etc.): 2016: dividend income of KRW 10.1 bn from WIC restructuring, prepayment fee income of 8.6 bn from WIC restructuring 4. Based on 331,716,997 shares outstanding (weighted average of 331,459,341 shares for pre follow-on offering period (269 days) and 349,044,336 shares for post follow-on offering period (4 days)) PAGE 15

17 Financial Position Statement Non-consolidated as at 30 September 2017 and 31 December September December 2016 Assets Invested Assets 1,757,727 1,740,511 Cash & deposits 22,112 58,664 Loans 1,244,147 1,172,379 Equity securities 491, ,468 Others 343, ,483 Interest receivable 332, ,873 Other receivables 2,734 2,502 Deferred costs, net 2,675 3,108 Prepayment 4,857 - Total Assets 2,100,915 2,088,994 Liabilities Accounts Payable 2 1 Management fee payable 9,096 9,415 Long-term debt 22, ,355 Bonds 249, ,797 Other liabilities 6,224 2,920 Total Liabilities 287, ,488 Shareholders Equity Share Capital 1,815,615 1,670,986 Retained Earnings (Accumulated deficit) (2,681) (5,480) Total Shareholders Equity 1,812,934 1,665,506 Total Liabilities and Shareholders Equity 2,100,915 2,088,994 CHANGE OF INVESTMENT (Unit: KRW mil) Project Company Item 2017 PIIK* Equity (18,000) PIIK* Loan (46,248) IGB Sub Debt 151,622 KBICL Senior Debt (20,000) KRRC Senior Debt (3,375) SICL Senior Debt (5,396) SICL Sub Debt (4,800) Total** 53,803 * PIIK is MKIF s wholly-owned subsidiary that made an equity investment in IGB on behalf of MKIF ** Excludes BYTL loan amortization of KRW 35 million PAGE 16

18 Performance of the Toll Road Assets Traffic volume increased across all toll road assets 1, except for Baekyang Tunnel 2 (As at 30 September 2017) Traffic volumes from the following assets showed improvement with the respective reasons: - Woomyunsan Tunnel: traffic volume decrease effect eased as the operating period of the competing road called Gangnam Beltway has passed a year. Moreover, road works on the nearby alternate routes resulted in an inflow of additional traffic to Woomyunsan Tunnel - Seoul-Chuncheon Expressway: opening of the new connecting road (Donghongcheon-Yangyang Expressway) has attracted additional traffic - Gwangju 2nd Beltway Section 1 and 3-1: increase in visitors and new residents near Gwangju has entranced more traffic 2017 YTD 3Q 2017 Average daily traffic volume Average daily traffic revenue Average daily traffic volume Average daily traffic revenue Vehicles/day % change on YTD KRW 1,000/day % change on YTD Vehicles/day % change on PCP KRW 1,000/day % change on PCP Baekyang Tunnel 78, % 64, % 78,815 (0.1%) 64, % Gwangju Second Beltway, Section 1 52, % 55, % 53, % 56, % Incheon International Airport Expressway 81, % 411, % 85, % 429, % Soojungsan Tunnel 49, % 45, % 50, % 45, % Cheonan-Nonsan Expressway 53, % 450, % 54, % 454,315 (0.3%) Woomyunsan Tunnel 30, % 65, % 32, % 70, % Gwangju Second Beltway, Section , % 48, % 47, % 51, % Machang Bridge 38, % 86, % 39, % 88, % Yongin-Seoul Expressway 92, % 149, % 94, % 153, % Seoul-Chuncheon Expressway 50, % 327, % 59, % 379, % Incheon Grand Bridge 47, % 247, % 49, % 247,107 (2.1%) Weighted average growth rate 3 5.3% 4.0% 3.9% 2.7% 1. Based on 3Q 2017 data compared with 3Q Baekyang Tunnel: weekend & holiday traffic volume decreased slightly as less people travelled to the Busan area during 3Q 2017 compared with the previous corresponding period 3. On a weighted average basis based on the revenue size and MKIF equity ownership in each project company PAGE 17

19 Busan New Port Phase 2-3 (BNP) 3Q 2017 Performance BNP 3Q Q 2016 Throughput volume (TEU) 0.56 mil 0.41 mil Volume growth over pcp 38.5% 4.5% Revenue (KRW bn) Revenue growth over pcp 14.8% 16.4% EBITDA (KRW bn) EBITDA growth over pcp 12.1% 41.3% EBITDA margin (%) 50.3% 51.6% Container terminals of New Port 1 Throughput volume (TEU) 3.39 mil Volume growth over pcp 3.6% BNP Historical results and 2017 target (KRW bn) (TEU mil) (E) 3 Revenue EBITDA Volume BNP handled 0.56 million TEU during the Quarter, a growth of 38.5% on pcp, recording a historical high quarterly throughput. BNP s volume performance improvement continues to be driven by the robust and stable volume generation from its partner alliance Ocean Alliance and APL Revenue and EBITDA increased by 14.8% and 12.1% during the Quarter on pcp, recording KRW 27.4 billion and KRW 13.8 billion. This was mainly due to the increase in volume and improvement in cost efficiency. BNP entered into an amended operating and management agreement during the Quarter with its existing operator. The renegotiated terms are expected to bring labor expense savings of ~10%, or ~KRW 3 billion in ,3 and a larger magnitude of savings as the handling volume grows 2,3 For FY2017, BNP targets approximately 1.9 million TEU of handling volume and KRW 97.1 billion and KRW 44.8 billion of revenue and EBITDA, respectively 3 - BNP is expected to service all Ocean Alliance s vessels into New Port (2.6 million TEU in 2016), and its partnership with Ocean Alliance has secured a promising platform for future volume growth - The revenue projection includes the impact from a reduction in tariff largely driven by the reformation of the shipping alliances. In response, BNP remains focused on achieving the optimal cost structure and operational efficiency to continue generating the highest level of EBITDA margin among the New Port terminals 1. Source: Busan Port Authority. Five container terminals including BNP and excluding multi-purpose terminals 2. 10% savings in labor fee estimated for 2017 based on the handling volume of 1.9 million TEU; increased savings estimated as the handling volume grows to BNP s maximum capacity of 2.5 million TEU 3. Actual performance may vary from the forecast provided by BNP PAGE 18

20 The New Port 5 container terminals of the New Port handled 12.8 million TEU of container throughput volume Busan Port Authority anticipates Busan s overall handling volume target for 2017 to be 20.0 million TEU, a ~3% growth from pcp Only BNP has the capacity to handle additional volume and make expansion among the five terminals in the New Port Busan Port performance highlights Historical performance of the New Port ( ) 3 FY2016 BNP New Port North Port Container terminals ( CTs ) in operation Handling capacity of CTs 1 (TEU p.a.) (New Port Terminal) 5 Terminals 3 Terminals mil 14.9 mil 7.5 mil Actual volume in FY mil 12.8 mil 6.6 mil Volume Growth over pcp Capacity utilisation Rate of CTs (%) 16.2% (0.2%) (0.1%) 62.3% 86.0% 87.4% Busan Port market share 3 7.9% 66.1% 33.9% (TEU mil ) % 100% 89.8% 84.4% 86.0% 16 90% % 72.7% % % % % 8 40% % % 2 10% 0 0% Volume (LHS) Surplus Capacity (LHS) Capacity Utilization (RHS) 1. Source: BNP; reflects the merge of KBCT and BIT on November Source: BNP s volume includes shifting; New Port s and North Port s volumes are compiled by Busan Port Authority and do not include shifting 3. Source: Busan Port Authority shifting volume excluded; volume of miscellaneous terminals included for market share calculation PAGE 19

21 3 MKIF Share Offering & IBC Transaction

22 MKIF Share Offering Successful completion of MKIF s first public offering since IPO marked by a minimal discount pricing, efficient process management and an innovative offering structure Share Offering Overview Offering size: 17,584,995 common shares (~5.3% of total shares outstanding), or KRW 147bn Use of proceeds: (1) immediate deployment for an additional investment in IBC 1 ; and (2) reserve for future investment opportunities Structure: public offering - share allocation of 20% existing shareholders / 60% institutional investors / 20% retail investors Underwriting: minimized execution risk as a result of securing a forward commitment on the discount rate 2 from two co-lead managers Pricing: book-building based on domestic and global institutions to maximize competition and therefore the offering price Key Highlights 1 Unprecedented offering with innovative structure First follow-on offering by a listed fund in Korea First follow-on offering in Korea via institutional book-building Execution timetable shortened from typical ~40 days to ~30 days Successful execution Book building fully processed by domestic and overseas institutions from selected markets Stable post-announcement trading over a 28-day period Offeringprice represented a 1.2% discount to the closing price on the announcement date Minimized risks A 30-day forward underwriting commitment (underwriters committed to a back-stop discount rate of 4.5%) Favorable impact to MKIF Successful capital raising result with the minimal discount rate (0.0%) Set the pathway for future public offerings 1. Incheon Bridge Co., Ltd. 2. Hard underwriting at a backstop of 4.5% to the reference price PAGE 21

23 Transaction Highlights MKIF made a net additional investment of KRW 131.5bn into Incheon Bridge Co., Ltd. ( IBC ) to acquire additional equity interest and principal in the subordinated debt ( sub-debt ) Transaction highlights MKIF increases its ownership in the IBC equity and sub-debt IBC, the concessionaire of Incheon Grand Bridge ( IGB ) undertook (i) debt refinancing, (ii) shareholder changes and equity capital redemption, and to effectuate (iii) a reduction in the toll fare of IGB (together the Transaction ) The Transaction results in a net increase of MKIF investment in IBC by KRW 131.5bn (the Investment ) Acquisition of 23.03% equity interest from AMEC Additional investment in the sub-debt The Investment was funded by reinvesting the unpaid interest on the existing sub-debt and injecting MKIF s capital Transaction was completed in September 2017 Incheon Grand Bridge IGB provides a vital travel route to air and recreational travelers and commuters Convenient connection to Incheon Airport: services a steady number of airport users Strong growth outlook: increasing demand for air travel and major residential and commercial developments in the adjacent areas Quality asset: well-maintained and a landmark bridge of Korea; provides meaningful reduction in travel time for users as one of the two vital links to Incheon International Airport Stable business structure: long-term concession until 2039 with MRG coverage through 2024 and competing road protection clause PAGE 22

24 Asset Overview A 12.3km, dual three-lane tolled bridge connecting Incheon International Airport to the newly developed commercial area of New Songdo International District in Incheon City Asset Overview Long concession MKIF ownership since opening in 2009 ~22 years till concession expiry in 2039 Midan City New Airport Highway Seoul Proven track record ~7 years of operation Steady cashflow generation since opening Inspire IR Sky City Downside protection Growth potential MRG coverage (80%) until 2024 Competing toll road protection clause Increasing number of air travelers / Incheon International Airport users Robust residential and commercial development pipeline in the adjacent areas Incheon International Airport Paradise City IGB Songdo Incheon City FY2016 Performance 1 Annual average daily traffic 44,561 vehicles Toll Revenue 2 KRW 88Bn EBITDA Margin 83% vs % vs % vs %p record margin since opening 1. Historical performance is not an indication or guarantee of future performance 2. Toll revenue excluding ancillary revenue and government support payment PAGE 23

25 Historical Performance 1 Steadily improving revenue and EBITDA performance Traffic Performance ADT KRW bn EBITDA 2 Performance EBITDA Margin % 73% 77% 79% 79% 78% 83% Revenue Performance KRW bn Toll Revenue Ancillary Revenue Government Support Net Debt 3 to EBITDA x x 9.3x 7.7x 3 6.9x 6.1x 4.6x Based on audited financial statements and company provided materials; historical performance is not an indication or guarantee of future performance 2. Earnings before interest, tax, depreciation and amortization. Based on the toll revenue including government support payments subtracted by operating expenses. Excludes non-operating income and expenses 3. Net debt includes senior debt and standby, net of cash and cash equivalents PAGE 24

26 Growth Drivers Increasing demand for air travel as well as major commercial and residential developments will drive the growth of traffic through IGB Accessibility New Airport Highway Incheon Airport Actual passengers CAGR 7.1% ( ) Estimated passengers CAGR 4.2% 1 ( ) Estimated cargo volume CAGR 2.7% 1 ( ) Midan City Sky City Third Bridge (Plan) Seoul Gyeongin Expressway Mega resorts Residential Development Lippo & Caesars casino resort, international healthcare center, luxury hotels, theme park, concert halls, shopping malls, etc. Midan City opening expected in 2020 and Paradise City recently opened in April ,3 Yeongjong Island Incheon Airport Paradise City Incheon Grand Bridge Incheon City 2nd Gyeongin Expressway 3rd Gyeongin Expressway Sky City 2,4 Three-phase development plan until 2020 Growth in number of island residents expected Songdo Town 2,5 Connecting Road Gyeongin Express (1st, 2nd, 3rd) US$40bn development project; one of the biggest projects by investment size in Korea Steady increase in population expected through 2040 Competing Road The bridge connects to 2nd and 3rd Gyeongin Expressway, which leads to main Metropolitan residential areas such as Gwacheon, Siheung and Anyang City Songdo Town Incheon International Airport Expressway Only competing route to Yeongjong Island Third Bridge Incheon City is considering to build / open in 2024 IGB is protected under the competing road provision in the CA 1. Ministry of Land, Infrastructure and Transportation ( MOLIT ) s Mid-to-long-term Airport Development Plan Version 5 2. Development plans may change and actual completion/opening timeline may differ 3. Lee, Miyeon (1 Jun 2017). Yeongjong Midan City Casino Mega Resorts Await the Construction Completion. Maekyung Media Group, 4. Kim, Dongho (8 Jun 2017). Rising Expectations of Yeongjong Sky City Phase 3 Development. Sedaily, 5. Kim, Hakjun (28 Jan 2016), Reading the Meaning of Incheon population Reaching over 3 million. Seoul News, PAGE 25

27 Transaction Summary The Transaction entails (i) refinancing of senior and subordinated debt; (ii) shareholder changes and equity capital redemption; and (iii) toll fare reduction Senior debt refinancing 4 Larger amount: principal increased from KRW 393bn to KRW 450bn Lower interest rate Senior loan (floating): 3-yr corp. bond AA % + 1.5% p.a. 2 ( ~40bps) Senior loan (fixed): 3.40% p.a. 3 Longer maturity: matures in 1Q 2031 ( ~6 years) Pre-Transaction Senior loan 100% / 393bn Post-Transaction Senior loan (fixed) 22% / 100bn Senior loan (floating) 78% / 350bn Sub-debt refinancing Larger amount: principal increased from KRW 155bn to KRW 296bn The refinanced new sub-debt balance includes MKIF s unpaid interest on the existing sub-debt of KRW 43bn Higher / fixed interest rate: 3-yr corp. bond AA % 12.0% p.a. ( ~370bps) Longer maturity: matures in 4Q 2037 ( ~11 years) Other Lenders 42% / 66bn MKIF 58% / 89bn Other Lenders 19% / 55bn MKIF 81% / 241bn Share purchase & equity capital redemption Share purchase: MKIF acquired 23.02% of equity interest from AMEC for KRW 46bn Capital redemption: IBC book value decreased from KRW 165bn to KRW 61bn Equity capital was repurchased by IBC funded by the proceeds from new senior and sub-debt AMEC & IMC 29% KB & IBK 30% 4 MKIF 41% IMC 6% 4 KB & IBK 30% MKIF 64% Toll reduction Concession agreement amendment effectuated an average toll rate reduction by 11.3% 5 beginning 15 August % as at 11 Aug 2017 (KOFIA) 2. Weighted average rate of tranche A at 3-yr. corp. bond AA % p.a. and tranche B at 3-yr. corp. bond AA % p.a. Tranche A incurs fees of 0.3% p.a. to Korea Infrastructure Credit Guarantee Fund ( KICGF ) 3. Includes interest rate of 3.2% p.a. and fees to KICGF of 0.2% p.a. Excludes the one-off expense of 0.08% in Incheon Metropolitan City 5. Small vehicle toll fare decreased from KRW 6,200 per vehicle to KRW 5,500 per vehicle PAGE 26

28 Investment Funding The Investment of KRW 131.5bn was funded by reinvesting the unpaid interest on the existing subdebt and injecting MKIF s capital 1 Unpaid interest settlement Sub-debt refinancing as part of the Transaction involves a settlement of unpaid interest on the existing sub-debt 1 Sources (KRW bn) Reinvestment of unpaid interest on sub-debt 42.5 Funding sources The settled amount becomes part of the new sub-debt principal and therefore part of the funding for the Investment MKIF s portion of the unpaid sub-debt interest is KRW 42.5bn MKIF s capital injection 89.0 Total Sources MKIF s capital Remainder of the Investment was funded by MKIF s capital 2 Uses (KRW bn) 2 Net additional investment by MKIF MKIF Investment into IBC Increase in sub-debt lending KRW 151.6bn Total Uses Investment build-up Equity purchase from AMEC Less: proceeds from capital redemption Net additional investment by MKIF KRW 46.2bn (KRW 66.3bn) KRW 131.5bn Part of MKIF s investment in the new sub-debt and equity is reduced by the proceeds from the capital redemption, resulting in the net additional investment amount of KRW 131.5bn PAGE 27

29 Investment Rationale Return accretive investment in a well-performing asset with a promising growth outlook while improving governance Return and yield improvement Stronger governance Well known asset to MKIF Increased revenue income and distributable earnings for MKIF Larger exposure to sub-debt at higher interest rate Higher dividend allocation through increased ownership Return accretion expected Combined IRR (equity and sub-debt) and 5-year yield to improve post- Investment Extension of the remaining weighted average MKIF portfolio concession life by 0.2 year MKIF portfolio concession life becomes ~18.7 years Majority control by MKIF Ownership to increase from 41.02% to 64.05% Better control over key business decisions and investment planning to drive future performance Favorable alignment of interest among shareholders Remaining shareholders post- Transaction include local government 1 and financial investors 2 Financial investors combined ownership of 94% creates a well-aligned view among the shareholders on the optimal management of capital structure and cash flows of IBC High performing asset ~7 years of proven track record with traffic CAGR of 9.7% 3 Currently performing at 89% 4 of the concession forecast, well above the MRG coverage 5 Strong growth outlook Increasing demand in air travel Robust residential and commercial development pipeline in nearby areas Upside potential in traffic volume due to a drop in the toll fare Understanding of regulatory regime History of co-operation with government bodies and other various stakeholders 1. Incheon Metropolitan City 2. Senior and subordinated debt lenders including MKIF, KB Bank and IBK 3. During Traffic performance during January September MRG coverage of 80% PAGE 28

30 A Appendix

31 Asset Management Fees 1 Management fees consist of Base Management Fee and Performance Fee Fees calculated and paid on a quarterly basis Performance Fee is linked to the performance of the fund (primarily the market capitalization of the fund) - Paid only when there is outperformance exceeding benchmark hurdle return - Underperformance is carried forward Management Fee % per annum falling to 1.10% 2 of Net Investment Value (NIV) of MKIF; plus (+) % per annum falling to 1.05% 2 per annum of Commitment 3 of MKIF Performance Fee - 20% of outperformance; the amount by which the sum of quarterly return 4 and cumulative deficit 5 exceeds the quarter s benchmark return (8% p.a.) *NIV for any quarter equals: - The average market capitalisation 6 of MKIF over all trading days in each calculation period; plus (+) - The amount of any external borrowings by MKIF; less (-) - Cash or cash equivalent held by MKIF 1. Details of the calculation method is stated in the Articles of Incorporation available on MKIF website ( 2. For NIV +Commitment in excess of KRW 1.5 tn 3. Commitment means all amounts that MKIF has firmly committed for future investment 4. Quarterly return to be measured by multiplying the performance of MKIF accumulation index to the market capitalisation 6 of the previous quarter-end over last 15 trading days. Performance of MKIF accumulation index is measured as increase in the average of the index over last 15 trading days of a considered quarter compared to its previous quarter. Index is calculated on a daily basis inclusive of share price performance and distribution. Distribution is assumed to be re-invested on the ex-dividend date at the closing price 5. Cumulative deficit is the sum of quarterly surplus/deficit accumulated from the payment of previous performance fee. Quarterly surplus/deficit is the difference between quarterly return and the quarter s benchmark return (surplus when positive, deficit when negative) 6. Calculated on the basis of volume weighted average trading price for the considered period PAGE 30

32 Minimum Revenue Guarantee Minimum Revenue Guarantee (MRG) Mechanism (Conceptual Diagram) Revenue Actual Revenue Relevant government authorities extract the excess portion Revenue Cap 1 Forecast Revenues 2 MRG 1,3 Inflation-linked revenue support MRG line tracking the forecast revenue line (typically 70~90% below forecast revenue) Korea s sovereign rating as at 30 September 2017: - S&P: AA (Stable) - Moody s: Aa2 (Stable) Relevant government authorities compensate the shortfall Time 1. MRG and revenue caps vary across assets 2. Forecast revenues set out in the Concession Agreement 3. In two of 10 MRG assets, no revenue guarantee applies if actual revenue falls below 50% of the toll revenue forecast PAGE 31

33 MKIF Investment Details 1 (As at 30 September 2017) (Units: KRW bn, %) Project Company Abbrev. Equity Ownership (%) Subordinated Debt Senior Debt Total Baekyang Tunnel Ltd BYTL Kwangju Beltway Investment Co., Ltd KBICL New Airport Hiway Co., Ltd NAHC Soojungsan Investment Co., Ltd SICL Cheonan Nonsan Expressway Co., Ltd CNEC Woomyunsan Infraway Co,. Ltd WIC Kwangju Ring Road Company Ltd KRRC MCB Co. Ltd MCB Gyeogsu Highway Co., Ltd YSE Seoul Chuncheon Expressway Co., Ltd SCE Incheon Bridge Co. Ltd IGB BNCT Co., Ltd BNP Total , ,731.2 Percentage (%) 27.8% 62.3% 9.9% 100% 1. Based on MKIF investment amount 2. Includes KRW 3.2 bn working capital facility and KRW 50 bn shareholder loan ) 3. Includes KRW 50 bn working capital facility PAGE 32

34 Government Support Payment Provisions Baekyang Tunnel Asset Gwangju 2nd Beltway, Section 1 Incheon International Airport Expressway Soojungsan Tunnel Relevant Authority Busan Metropolitan City Gwangju Metropolitan City Concession Term Concession Term Remaining Support Payment Duration Support Payment Duration Remaining Revenue Guarantee Threshold 1 Revenue Cap Threshold 1, % 110% Investment cost compensation MOLIT % 110% Busan Metropolitan City % 110% Cheonan-Nonsan Expressway MOLIT % 110% Woomyunsan Tunnel Gwangju 2nd Beltway, Section 3-1 Seoul Metropolitan City Gwangju Metropolitan City N/A % 110% Machang Bridge GSND % 100% (As at 30 September 2017) Remarks Target cash flow of the concessionaire guaranteed Partial revenue sharing in excess of 80% to 110% level For toll revenue below 90%, Busan Metropolitan City is obligated to compensate 91.5% of the shortfall amount Partial revenue sharing in excess of 82% to 110% level As part of the capital restructuring transaction completed in Jan 2016, MRG provision was removed Revenue guarantee applies to MCB account 4 50:50 revenue sharing with relevant authority in excess of expected revenue at 100% level Yongin-Seoul Expressway 5 MOLIT % 130% Seoul-Chuncheon Expressway 5 MOLIT %/60% 130%/140% Revenue threshold change: 70% / 130% until 10 August % / 140% from thereon to 2024 Incheon Grand Bridge MOLIT % 120% Busan New Port Phase 2-3 MOF N/A Weighted average % of annual concession agreement projected revenue 2. Relevant government authorities are entitled to receive the portion exceeding the threshold 3. MOLIT (Ministry of Land, Infrastructure and Transport) / GSND (Gyeongsang Namdo Government) / MOF (Ministry of Oceans and Fisheries) 4. Refer to the disclosures on MKIF website ( on 2 January 2017 for detailed information on MCB restructuring 5. No revenue guarantee applies if actual revenue is below 50% of the annual concession agreement projected revenue 6. Weighted average based on MKIF investment amount PAGE 33