The information below is provided to answer some of the frequently asked questions that investors in the past have raised regarding Macquarie Korea Infrastructure Fund (“MKIF”) and does not constitute any offer or solicitation of the securities of MKIF. Please refer to the disclosures and materials posted on the MKIF website for additional information that may assist investors in making investment decisions.
MKIF was established on 12 December 2002 as “Korean Road Infrastructure Fund,” and has been renamed as “Macquarie Korea Infrastructure Fund” as of 11 November 2005.
MKIF is a company-type infrastructure fund established under the Act on Public Private Partnerships in Infrastructure (the “PPI Act”), which was enacted with the aim of facilitating private sector’s participation in Korea’s infrastructure development. Also, MKIF is a publicly listed collective investment vehicle (“fund”) that is governed by the Financial Investment Services and Capital Markets Act (the “FSCMA”) and the Korea Exchange (the “KRX”) regulations.
Macquarie Korea Asset Management Co., Ltd. (“MKAM”) is the asset manager of MKIF.
The FSCMA stipulates that funds established in Korea must be managed by an external asset management company and that asset management companies are required to have a license issued by Financial Services Commission.
MKAM is a licensed infrastructure asset management company in Korea and has been serving as the asset manager of MKIF since 13 December 2002 after signing an asset management agreement with MKIF. MKAM oversees the investment activities and daily operation of MKIF pursuant to the terms defined in the asset management agreement and MKIF Articles of Incorporation.
MKIF has been publicly traded on the KRX since its listing on 15 March 2006 and investors can trade shares of MKIF using brokerage accounts created at one of the securities firms registered to the KRX. The registered securities firms are listed on the KRX website.
The KRX code for MKIF is 088980.
No, investment principals of MKIF shareholders are not guaranteed for repayment. The share price and distributions of MKIF depend on various factors including the operating performance of its invested entities (the “project companies”) and market conditions. As MKIF is not subject to the Depositor Protection Act, investors may incur a loss if share price and distributions are insufficient to cover their original investment principals. Thus, investors are advised to exercise caution in making investment decisions.
Yes, as a special-assets fund under the FSCMA, MKIF can make additional investments in new infrastructure projects as defined under the PPI Act.
MKIF can utilize any of the following resources: (i) existing investment capital, (ii) capital raised from follow-on equity offering, and (iii) fund-level debt (MKIF may issue debt up to 30% of its capital under the PPI Act).
MKIF can invest in essential economic infrastructure projects that include roads, railways, ports and energy facilities. While MKIF’s current investments are focused primarily on government solicited BTO (build-transfer-operate) projects in transport sector, MKIF targets to invest in a broader spectrum of infrastructure projects in any of the sectors defined under the PPI Act.
Unless events specifically listed in the MKIF AOI trigger the dissolution of MKIF, MKIF is dissolved when (i) all project companies reach concession expiry or are sold, (ii) the fund distributes remaining capital and profit to its shareholders, and (iii) dissolution is approved in MKIF’s shareholders’ meeting. Dissolution will be postponed if MKIF makes additional investments in new projects that last longer than the existing portfolio.
For reference, the events listed in the MKIF AOI that may cause the dissolution of MKIF are: (i) by a resolution adopted at shareholders’ meeting, (ii) merger, (iii) insolvency, (iv) order or judgment from the court and (v) cancellation of the registration of the Asset Management Company.
All 14 project companies of MKIF are BTO-type government concession projects. Under a BTO scheme, private investor provides all or part of the cost to build an infrastructure asset, and transfers the ownership of the asset to the government after construction is completed. In turn, private investor is granted a concession right to generate revenue by operating and managing the asset for an agreed concession period.
Accordingly, each project company invested by MKIF operates and manages a specific infrastructure asset for a concession period, and as it reaches concession expiry, invested capital is returned to MKIF in the following ways:
For equity investment, the capital is normally recovered as project company is liquidated after the respective concession right expires. If project company has cash exceeding 100% of its paid-in capital, the excess cash will be distributed to shareholders pro rata as liquidation dividends. Of the total received cash amount, (i) up to the capital invested by MKIF, MKAM exercises discretion on its use and (ii) for any excess amount, MKIF will declare as distribution to its shareholders for the corresponding year.
For loan investment, MKIF would normally retrieve the capital prior to concession expiry as loan principal is typically structured to amortize during concession period.
However, in the event the performance of the project companies deteriorates to a point where MKIF receives less than the full amount of its invested capital, MKIF may write off the unreceived amount, potentially resulting in negative returns to MKIF shareholders.
Under the Commercial Act, companies are required to convene a general meeting of shareholders every year. However, as MKIF is a fund governed by the FSCMA, it is exempted from such requirement and may convene a shareholders’ meeting only when an agenda that requires shareholders’ approval is proposed.
The difference between distribution of a fund and dividend of a company is mainly driven by funds’ ability to distribute above net profit.
Under the Commercial Act, a company is only allowed to pay dividends to shareholders based on its net profit. However, under the FSCMA, a fund can distribute to shareholders (i) its net profit and (ii) when required, an amount in excess of net profit (“over-distribution”).
Furthermore, while companies governed by the Commercial Act must set aside legal reserve prior to paying dividends to shareholders, funds are exempted from such requirement and may distribute their entire net profits generated during a fiscal year. However, if a fund has an accumulated retained loss resulting from over-distributions made in the past, it may distribute less than net profit in the future to recoup the accumulated retained loss.
Whereas distribution is the sharing of fund’s net profit among its shareholders, return of capital is the redemption of the original capital invested into a fund back to its shareholders. Return of capital occurs when fund retrieves capital from its investments and does not utilize retrieved capital in making new investments and/or in repaying fund-level debt.
For shareholders, distributions are subject to dividend income tax, while returned capital is not subject to any tax. Prior to returning capital, MKIF will make a public disclosure accordingly to inform shareholders of the implications associated with return of capital.
MKAM exercises discretion on the use of the capital retrieved by MKIF based on financial and tax implications to the fund and its shareholders. In general, the retrieved capital is used in the following order: (i) utilize in making new investments, (ii) repay fund-level debt, and (iii) return to MKIF shareholders.
For reference, the total amount of capital utilized by MKIF can be found in the Statements of Financial Position of MKIF under “Invested Assets.” Investors should be aware that MKIF may not receive back the full amount of its invested capital if the performance of the project companies deteriorates.
The total amount of capital utilized by MKIF as of 30 June 2019 is KRW 1,705.9 billion (KRW 4,887 per share), which includes the cash & cash equivalents of KRW 50.3 billion, loan investment capital of KRW 1,213.0 billion and equity investment capital of KRW 442.6 billion. However, MKIF may not receive back the full amount of its invested capital if the performance of the project companies deteriorates.
Since its listing, MKIF has provided semi-annual distributions to the shareholders registered to its shareholders' registry on 30 June and 31 December (each the "Record Date"). Pursuant to the KRX regulations, MKIF discloses an estimated amount of distribution before 10 business days prior to each Record Date upon receiving approval from its Board of Directors. Actual amount of distribution is determined approximately one month from each Record Date after financial statements are finalized and the Board of Directors grants approval (the “Final Approval Date”). Subsequently, payment is made within one month from the Final Approval Date in accordance with the MKIF AOI.
Therefore, assuming the current distribution policy continues, distributions would be paid at the end of August for the Record Date of 30 June and at the end of February of subsequent year for the Record Date of 31 December. For details of the past distributions made by MKIF, please refer to Appendix A.
No, MKIF does not provide information on future distributions, as it is a practice strictly prohibited by the FSCMA. The FSCMA prohibits funds from making a forward-looking statement on future investment returns that may vary depending on internal and external factors.
MKIF establishes a strategy against future interest rate fluctuations by regularly conducting market analysis. Depending on its medium and long-term interest rate forecast, MKIF proactively alters the mix of fixed and floating rate components of its assets and liabilities and introduces hedging strategy as appropriate.
MKIF can only invest in Korean infrastructure projects listed in the PPI Act. As such, MKIF is not currently exposed to foreign exchange risk, as all its investments and liabilities are denominated in Korean Won.
Macquarie Korea Asset Management Co., Ltd.
18th Floor, Unit A, Centropolis, 26,
Ujeongguk-ro, Jongno-gu, Seoul, Korea
Postal code: 03161
(Phone: +82 (2) 3705-8565 / Fax: +82 (2) 3705-8596)
As at 31 December 2020, the following taxes are applied when a shareholder trades (sells) MKIF securities. Investors are advised to consult their own tax advisers as to tax consequences of the purchase, ownership, and disposition of shares, including the effect of any national or local tax laws.
Capital Gains Tax
Securities Transaction Tax and Agriculture and Fishery Surtax
As at 31 December 2020, the following tax is applied when a shareholder receives distributions from MKIF. Investors are advised to consult their own tax advisors as to tax consequences of the purchase, ownership, and disposition of shares, including the effect of any national or local tax laws.
Dividend Income Tax