SOUTH KOREA Law and Practice Contributed by: Michael Chang, Sang-Hyun Lee, Su-Yong Jung and Jae-Wook Ryu, Shin & Kim
(e) the Korea East-West Power Co Ltd. • Hydro and nuclear generation company: (a) Korea Hydro & Nuclear Power Co Ltd. GENCOs are wholly owned by KEPCO. 1.3 Foreign Investment Review Process General Restrictions Foreign investment in South Korean entities is gener- ally unrestricted and, unless otherwise provided under relevant laws, foreign investors are treated equally to domestic investors. The Foreign Investment Promo- tion Act offers certain incentives, such as tax reduc- tions or exemptions and lease subsidies, to foreign investors that meet certain requirements. However, foreign investment in certain industries may be restricted by designation or public notice if foreign investment: • threatens national security and public order; • harms public health and sanitation or environmen- tal preservation; • is against South Korean morals and customs; or • violates any South Korean laws or regulations. Restrictions on Foreign Investment in the Power Industry The following restrictions apply to foreign investment in the power industry. Under the Electric Utility Act, if an investment in a nuclear power generation business qualifies as a for- eign investment under the Foreign Investment Pro- motion Act (investment amount of KRW100 million or more and 10% or more shareholding), the Ministry of Climate, Energy and Environment (MCEE) must revoke the nuclear power business licence. The Inte- grated Public Notice of Foreign Investment imposes restrictions on the acquisition of shares issued by entities operating nuclear power generators (gener- ally applying to a 10% or more shareholding) and for- eign-investment entities cannot obtain a newly issued electricity business licence (an EBL) for nuclear power generators. Under the Financial Investment Services and Capi- tal Markets Act, a foreign entity cannot acquire more
than 3% of equity securities of a listed entity in certain industries essential to the national economy (the listed entities are known as “Public Purpose Corporations”). Even if a foreign entity acquires more than 3% of the equity securities of such listed entities, its voting rights are capped at 3%. As KEPCO is designated a Public Purpose Corporation, the foregoing restrictions apply
to the acquisition of KEPCO’s shares. 1.4 Sale of Power Industry Assets General
Apart from any merger control issues that may arise under the Monopoly Regulations and Fair Trade Act (the “Fair Trade Act”), the following activities require the approval of the Minister of MCEE under Article 10 (1) of the Electric Utility Act (the “MCEE approval”). • Acquisition of all or part of an electricity business. • Division or merger of an electricity business. • Acquisition, for the purpose of exercising control, of: (a) 20% or more of the voting shares of an elec- tricity business with generation facilities that have a power generation capacity of 20 MW or greater, becoming the largest shareholder, with shares owned by jointly owned companies counted together to determine whether the voting-share ownership surpasses 20%; (b) 20% or more of the total issued voting shares of a company that holds shares as described in the bullet point above, if by acquiring such shares, the purchaser will become the largest shareholder; or (c) shares where that acquisition enables domi- nant influence over the management of an electricity business, such as the power to appoint or dismiss the representative directors or over 50% of the directors of such electricity business. The acquirer must obtain MCEE approval before the closing of the relevant transaction. The approval is granted after passing the deliberation of the Electricity Regulatory Commission (ERC), a commission estab- lished under the supervision of MCEE under the Elec- tric Utility Act. The processing time for the approval is typically more than two months from submission of the application.
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