dividends + IPO

So, stock dividends and stock split, this is in a broad range, broad category of payout policy. They also include these activities as the company's payout policy. So, we'll explore this in more detail.

The stock dividend is"주식 배경". Now we know when a company pays dividends, most of the times they pay dividends in cash. This is a special place where a company gives stocks to the shareholders. So, BERT issues new shares instead of paying cash to build. So, for example, if the company does a 10% stock dividend,

stockholders get 10 shares for each 100 shares own. And if you have 10 shares, you get one share. Now, why does company do this? We'll talk about it in the next slide after we talk about stock split.

because stock split has a similar effect. Stock split here firm increased the number of shares outstanding. Let's for example, let's say 2 to 1. So if a company does a 2 to 1 stock split, it means that each stock becomes two stocks.

So, a 2 to 1 stock split, the stock is split into two pieces. Company can do a 3 to 1 stock split in that case, each share now becomes three shares. So if you look at stock split, the effect of it is an extreme case of stock dividend because if a company does a 2 to 1 stock split, it's essentially the same as 100% stock dividend.

Because if you had owned one share, it becomes two shares, so it's 100% stock dividend. So stock split, you could understand it as an extreme case of a stock dividend. But they're technically different because not just in the size, because stock dividend, company usually cannot do 100% stock dividend, right? It's usually like 10 or 15% at the max.

So if a company does want to do more than that, they do it through a stock split. Another difference is that the accounting treatment to the company is different between stock dividend and stock split. But this is not an accounting plan, so we won't have that here. So we'll talk about reverse stock split later. Mechanically, what happens to the stock price?

So, for example, if a company does a 2 to 1 stock split, what happens to the stock price? Let's say that previously before the stock split, let's say the stock price was $100. After the 2 to 1 stock split, what happens to the price per share?

It will be cut in half, right? Because does anything change about the company value? It doesn't change, right? So the form value remains the same, right? And of course the equity value, the total market value will also stay the same. Market capitalization is the same.

It's just that the number of shares go up. So the per share price will go down. Because the value is spread across more shares. So the stock price goes down. So why does the company do this? Well before we talk about that, reverse stock split is the opposite to stock split. So like for example if a company is 1 to 10 reverse stock split, now 10 shares become 1 share. So in this case what happens to the stock price? Stock price will increase 10 fold.

So, a stock price that used to be $1 now becomes $10. So this one, if a company does a reverse stock split, when a stock price goes up, so why does the company do this? One reason why the company does a reverse stock split is to artificially increase the stock price such as to satisfy the listing requirement in the stock exchange. So, for the company to stay listed in the stock exchange, there's a listing requirement.

So, in some of the listing requirements, there could be like the minimum price per share the company should have. But if the stock price keeps going down, the company may want to artificially increase the stock price by doing a reverse stock split. But in the U.S., at least now, the regulators, they have blocked this as a listing requirement right? The company now cannot just do a reverse stock split to satisfy the listing requirement. But in some other stock exchanges where they have a listing requirement on the minimum stock price, then this could be one way to do that.

Then, of course, like there's some other stock manipulation that the manager could…the reason why they could do this is to like…maybe they want to exercise the stock option or maybe later on we'll learn about the convertible bonds.

So, this could happen. Anything that is tied to the stock price, the company can do this, but the regulation in almost all cases, they protect from companies doing this because there's extra clauses in the terms, right, that protect from companies doing this.

So here's the reason, the often cited reason is to increase liquidity of the stock, for both stock dividend and stock split. Because if a company has a stock dividend and stock split, now because there's more shares trading in the market, there's greater liquidity in Yudongsan.

So when there's greater liquidity, what happens? There could be more trading volumes because the stock price is not as expensive as before. So more traders can participate in trading that stock. So it could boost up the liquidity and thus the trading volume of the stock.

So firms often split stock when it is confident about future performance. Because stock split, what does it do? What happens to the stock price? It goes down. So a company would do a stock split if it is confident, where

it thinks that company thinks that the stock price will keep going up right so now they're worried that it's the price is too much for the small individual investors to buy the stock so they do a stock split so from a signaling perspective it's typically viewed as a positive signal that the management is confident about the stock price that the management thinks that the stock price will keep going up in the future

So here, what happens to a stock price when a company does a stock split? Mechanically, in cases like this, it will be cut in half, but if you incorporate the signaling aspect to it, maybe it's not cut as much, right? So like if a stock price was $10, right?

Technically, it should go down to $5, but maybe it stays like $5.50, for example, if you incorporate the signaling aspect. But not all companies do a stock split even if stock price is very high. This is not like an instruction to all the companies. It depends.

So back in the days, like Samsung Electronics, long time ago, did a stock split. Then Tesla did a stock split. So many companies do a stock split. Some companies, if you look at some companies, the stock price is very high. And a company that has the highest stock price right now is

but I think it's still Berkshire Hathaway so there's stock price sticker symbol is BRKAS

So it is $721,000. So it's maybe I guess about $15 per share. So it's a very high stock price. So you would think like for us, like if you want to buy stocks of this company, it would be very difficult to buy a share of this company. Because the price is so high, right? So like the stock split is, right, would be intended for stocks like this, where they intentionally lower the stock price. or just not price so many.

You can buy this stock. So if this was the, if you wanted to buy this stock, then maybe you could buy a fractional shares of this stock if there's a retail brokerage that offer a fractional investment. That's one way where you could invest in this company indirectly by buying a fund that invests in this company. So there's different ways to do this.

Okay, so if you look at this, then this company doesn't do a stock split. And first you see. And there is an alternative. Alternative is to create a dual class shares. So in this case, if you notice here, I typed in A. Now A is for class A shares, so it means that they have another class of shares.

So they have class B shares. So they have class B shares. Now this is much cheaper than before compared to class A shares. How are they related? So in this case, ERK A shares.

BRK D share. So, BRK A share has one holding. Each share carries one holding. This has virtually no holding, but it technically does have some holding, right, but it's very small.

I think it's one ten-thousand of a vote. It virtually has no voting rights. And then for the cash flow right, which is another right for having stock, this one originally,

1/30 of a cash flow rate. So initially, this stock was priced at about 1/30 of the price of stock, a Class A share. At the start, it was that. But as the stock prices went up, even 1/30 of the price of this, which is this, became very high for small investors. The company did do a stock split, but they did a stock split only for this shares, for Class B shares.

So they did a, I'm confused with the numbers,

So they did a class B shares later they did a 50 to 1 stock split. So after this the price of ERK A shares is roughly about not 30 times class B shares but 30 times 50 which is 1,500.

BRKB.

after the stock split. So it will be, let's take this and multiply this by 1,500. You get this, 719,325. That's

similar to this. It's not exactly the same. You could find cases, you could argue where this could happen, where this could happen. It's approximately, it's similar, but not always the same.

So sometimes this happens, sometimes this happens. When this happens, how can you explain this? When this happens, you could say, well, it's because of the voting right, right? Because this has voting, this one doesn't have a voting right, so this one still could be even higher than 1,500 times this, right?

When this happens, you could also explain this case, and this is the value of liquidity. Because this is more liquid, prices are higher, which reflects the higher liquidity, because investors can value those liquidity. So both can happen.

So, let's see. The alternative is to create dual clashes. I'll give you another example which leads to the next question. Is there another reason for having dual clashes? Are there any other reasons for the slay to keep its price share price so high for the sling?

So, why don't they do a stock split for A? Maybe I think one of it is to get the publicity for being the highest stock price in the world. That itself could gain some attention.

And I think like class A is not for the small investors, it's only for the institution, the large funds, the institution investors is the only people or institution that can buy that. So I think they don't care that much. Sure.

Here or in general, in these, what do you think of correlation? I mean, I can't really get like this.

Here the cash flow right is actually a little bit tricky because cash flow right, what you would imagine is like dividend, right? The right to get the dividend. Because that's what the cash flow is to the stockholders, right? But Berkshire has to actually don't pay good.

right so I mean if later on maybe they can decide to pay dividend now they don't pay dividends because their philosophy is that we if they have good places to invest reinvestment is always better than paying dividend if they can generate higher return right than what the shareholder's can so they don't pay dividend which it's it's you could imagine what maybe later if their rate or return on their investment goes down maybe they will start paying dividends and it will be paid accordingly right where you could think maybe liquidating dividends later on if the company liquidates for any reason

It's just like this when it was set at the beginning, right? When the class B shares were introduced, it was set at 1/30 of a price of class A shares. And you could say it's more like the interest, how much stake they have in the company.

It was just one thirtieth stake of the company compared to class these years.

And another example is Comalphabet. So, alphabet, if you want to invest in alphabet, there's G-O-O-G-L and there's G-O-O-G. These are both ComGoogle. Now it's called alphabet. This is

This is class A share of alphabet, this is class B share of alphabet, and this carries 1 volt. So this has voting, right? It's 1 volt per share. This one does not have voting, right? It's 0 volt per share.

This is the only difference. So if you check the stock price, it's fairly similar. And here, is there another reason for having dual class shares? Well, no, I'm sorry, this is one, it's class A to class C shares. And there is a class B share.

I don't think it has a ticker symbol because this one is not traded in the market. This has 10 volt shares. Who has this? Only the insiders of the company have this. So each share of class B carries 10 volts. Okay. It's not traded in the market. So you see, is there another reason for companies having dual class shares?

Yeah, it's to preserve their control over the company, to secure the control over the company, where the company insiders have shares with superior voting rights, and they only issue shares with less voting rights into the market. So if the insiders of the Google have lots of class B shares, they have a lot of voting power.

So they're more protected from being acquired.

So, these are traded in the market, so if you look at the price of GOOGL and the price of GOG, you would think which one should be higher. It would be very similar.

but maybe this right because it has some voting right right you could if this is the case then you can explain it well it's the value of voting right but but oftentimes you also see this happening right now i'm not sure which one is the case both can happen this can happen because now now here voting right doesn't matter that much because insiders have have too many too much voting power right so this the difference here is just so marginal

And this could happen because, well, you could argue liquidity, if there's more shares of GOG in the market, you could also explain it that way. But in the case of Google, another thing is when a company does a stock buyback, we talk about share repurchase, they tend to buy back more of these shares.

from the market. And when they give out Google stocks to the employees as a stock-based compensation, many are paid through GOOG. So Google buys and sells the stocks for, right? So because of that, the anticipation of Google buying back shares of GOOG may be one reason why this is trading at a premium compared to this.

I'll just tell you one more example of this. Kupang, next chapter is on the IPO. Now, Kupang did an IPO where? Not in Korea, but they did it in NYSE, New York Stock Exchange. Now, why did they do it in NYSE? Of course, one reason could be to raise more money. They may think if they do an IPO in NYSE, could they raise more money?

It could be one reason. Or it could be like some signal to the market where if they do an IPO in a larger market or in a more stringent regulatory environment, they are signaling that we can meet up the higher standards of this bigger market

So it could be like a sign of confidence. But one important reason why he founded an IPO in NYSE was NYSE allows for dual class shares. But in Korea, when you do an IPO, you cannot do a dual class share. And I mentioned another reason for having dual class share is to preserve the control

of the founder, right? So the founder, right, by doing IPO in the NISC, were able to have another share, and I think in the case of the shares that were issued at the IPO had one share, one vote, the usual case, right?

But the founder had 29 votes. He had a share with 29 votes per share. So it's a dual class share. He had that. The reason why it's 29 votes per share is like when there's an important matter in the company and when there's a...

proxy contest or a voting contest, right? There's different layers of voting that is approval by the shareholder that is required. So sometimes, right, it could be like if more than 50% of the shareholders approve, then there could be something that can be done. In some cases, it could be two-thirds or like 66.2%.

about 7%. In some cases, in the company's charter, it may say that you need more than 75% of the approval from the shareholders to do things like M&A. So there's different cutoff points. There could be different cutoff points. And I think the founder, let's say if the founder had like 10% of the shares of the company, right? And this calculation, right? This was just enough to go over this boundary.

Having 10% of the shares, but if each shares have 29 votes per share, the percentage of the vote that he has would be like, I don't know, for example, like 77%, which clears even this. And it would be a little bit better to have a little bit more than this because later on, the company can issue more shares, so his voting rights could be diluted later if a company issues new shares.

So I think that based on the calculation, it wasn't like 20 votes or 25 votes or 30 votes. 29 votes was just enough to clear that cutoff.

Now, I said in Korea, dual-class shares is not allowed at the IPO. It is allowed for the unlisted startup companies. The unlisted startup companies can have dual-class shares, but it's at the unlisted stage.

So that's something that's related to the chaos. Any questions? Let me take attendance and then we'll move on to the end. 최연호, 임재우, 옥민우, 박호영,

이승윤, 주재윤, 김준학, 김민수, 정태욱, 양준호, 이정우, 이윤규, 김혜린,

황기승 최정우 이종화 이소정 화장실 박현욱 박원욱 홍다혜 박웅빈

만유영, 이신형, 정주한, 황지호, 엄정환, 서정욱, 최효빈, 이해찬, 김진호, 정서윤

이서희, 소유민, 김재원, 김채린, 김채연, 송태민, 임준규, 노지호, 정윤재, 신서연,

한서윤 강예담 이정은 이선호 양지우 안규민 조범준 구민석 김민규

이고완, 주은형, 장경은, 윤다빈, 정승현, 주승원, 페이스, 브리젤, 브랜든, 렌지, 브라이언, 맥켄지,

선현욱 게이리

Okay. So, from this chapter onwards, it's going to be just independent topics in corporate finance, right? Because so far, what we did was we were looking at the three important decisions faced by a corporation in order to maximize volume value. From now, it's independent topics, and the first one we'll look at is MIPO.

And then after this, we'll look at some hybrid sources of financing, like convertible bonds, bonds with warrants, and then we'll also talk about M&A, bankruptcy, and corporate governance. These are standalone products. So IPO, we will start with venture capital because we're taking it from the life cycle of a company.

The majority of this chapter is devoted on the topic of IPO. So we'll look at the IPO process. And during the IPO process, there is a financial institution that takes an important role when company does an IPO. That's the investment bank, and their role is for the underwriter.

translated as the IPO. We'll look at the role. A very important event during the IPO process is how does the investment bank price the company shares? So how do they determine the IPO? That's one of the important things.

And related to this, we'll talk about a phenomenon called IPO underpricing. This is IPO 적합, where IPO overpriced tend to be priced a little bit low, underpriced. So that's why there's a lot of popularity with the IPO investment, right? It would happen because on average, many IPOs seem to be underpriced.

And we'll talk about one feature that, at least in the U.S. and in many countries in the world, where they use something called an over-allotment option, 초가대정. We'll talk about this mechanism.

So how are startup firms usually finance? Speaking of startups, if I do a bit of an advertisement, as I'm the executive director of a startup institute here, you probably know that. Every semester we have the startup competition. We select some student startup companies and they get to reside in the second floor of the business school main building. That's where the startup instituted.

They get to reside between one semester to a year, and if they're exceptionally good, they can reside there for up to one and a half year. And we give like coaching and mentoring service. Me and there's two adjunct professors who have experience in this startup industry. So we provide a lot of coaching and mentoring service. So this semester, the startup competition is being all available.

in early June, the application for that is, its deadline is tomorrow midnight. It's quite late. If any of you are interested, right, use the help of AI to generate what you have in your mind, then you could apply. And we'll go through an initial screening of the applications

And then the shortlisted applicants will do a short interview and then the selected ones from the interview will be on the main stage on early June. So even if it's not this semester, if you have any interest, you can do it in the next semester. You have it. We hold that event every semester.

I guess the, not related to this, but I guess what I find is the most good thing about starting your own company is that you're working for yourself.

In other cases, you are typically working for someone else. I mean, even the English wording is like,"I'm working for Samsung." So you're working for Samsung. And unless you go up the ladder and you become an executive sometimes, at least in the earliest days, you have to do what you're told to do.

A startup you can do whatever you want to do. You take the responsibility, you get to enjoy everything that you do. So if that sounds good. Okay, so how are startup firms usually finance?

These are the two main sources, starting from bootstrap financing and then going to venture capital funds. And venture capital funds here, it also includes like those smaller angel investors. The bootstrap financing is like these are very

personal source, personal financing source and private financing sources and informal financing sources. So it's funding the business with the founders own resources rather than outside. So this own resources could be personal savings, like get a credit card loan or

Like resources could be, it could include families and friends, money. So pros, keep full ownership and control. There's no equity dilution because you're not issuing any stocks at this stage. We're giving out stocks. Costs, of course, there'll be limited capital, slow growth because there's limited capital, and founder bears more, most of the risk. So the risk is not shared

with other capital suppliers. Many of the large companies did all start out as boost-traum. So like these startups that started in the garage, would start from having this boost-traum finance. So because this is limited, then they would tap onto the external sources

And these would be what we call venture capital funds. Most capital in fund is provided by institutional investors. So institutional investors invest their money into this venture capital funds, and the managers who manages this money, which is called the venture capitalists, right, they invest

they decide which startups to invest the money. So these are the venture capitalists who are managing this fund. Here we have the venture capital funding cycle where this is the amount of sales. Before the sales kick up, you start with the boost back financing and then there's various stages of the finance, seed stage, early stage, later stage.

By the way, what we talk about here in venture capitals, there's other courses in this department that offer classes only on this topic. There's many classes about startups and venture capitals, and they'll teach you more about this in the entire semester. But here in this class, we call it your corporate minus, we just look at these things, and the attention will be given to IPOs.

Here we have venture capital funding cycle. This is where the venture capitals come in. And then this is when the venture capitalists exit. We'll talk about the two different, two main ways where they can exit their position. So here is.

divided among C stage, early stage, later stage Binance.

So, in the industry jargon, you have like, you probably heard like series A, right, or series B, right? So, usually it starts with C stage, but sometimes it's, you can divide this by C stage, and then after that you can say 3A, right? And then it goes to like A, right? A series, B series, right? So A and B is typically at this early stage financing, that's where you hear series A, series B.

And then these later stage financing are like stage C, D, and it could go all the way to pre-IPO financing. So those are later stage financing. So you can read this. It explains about this graph.

And we'll see later in the later slides that venture capitalists exit. So this is when a company goes to the public market or private market. What I mean by public market or private market is public market is when a company sells their equity stake to the general public investor. So this is through.

an IPO. Private market is when a company sells part of its stake or all of its stake privately. So this is an M&A. When a company does an M&A, the company could be sold to two different types of buyers, strategic buyer or to a financial buyer.

We will talk about the difference between these two and selling the stock to the public, and first for the IPO.

So, to elaborate on the venture capital, after the founder develops a business plan and the prototype of the product, they can seek venture capital funding. Venture capitalists are professional investors or VC firms that provide equity financing to young, high-growth firms, and often advise them during early stages of growth. So they provide not only funding, but they also provide some advice.

So, in different stages of the company, you'll see later there's different people who give advice to the company. So, in this early stage, VCs could be someone who give advice to the company. Later on, when we talk about corporate governance, we'll talk about the role of the

directors in the company. Companies have a board of directors, Lee Sawe, right? And in the board of directors, they also have outside board of directors, right? Sawe, Lee Sa. And when we talk about the role of outside director, right? One of their role is also to give advice to the company.

So there's different people in this ecosystem that give advice to the company. And because of that, oftentimes in the early stages of the company, the venture capitalist could be, and many times they are one of the board members of the company.

The characteristic of the VC industry is that it's high risk high return as you can imagine. VC returns follow a power law distribution. A few home runs drive most of the money. The power law distribution is like a statistical distribution. Usually when you have a...

When you have a normal distribution, it's like this bell-shaped curve where if this is the return, it would be symmetric under the bell-shaped ball distribution. But in the power law, it would be something like this.

where if this is the return, x-axis is the return. And this is the number of cases, how many times it occurred. Most of the times return is zero, or zero.

They lose everything because the company just doesn't survive. There's a few outliers, right, which produce a very high record. But here, home run reverse, geez, the big hits.

So returns vary widely across funds and vintage years. Vintage years meaning like vintage, I guess it comes from like this winery, right? When they have a wine, when it was bottled, the year it was bottled. So vintage years like the year when the fund invested into that company.

So, it varies across funds and the year, right? What year was it? So according to this Cambridge Associates U.S. Venture Capital Index, over the 25 years through 2023, the average annual return was about 12 to 14 percent. So it is slightly higher than S&P 500, which historically long-top was about 10 percent

Now, these days, the SMT return is much higher. These days, 20% on average yearly, or even higher than 20%. But over the long run, it's about 10%. So, it's 3C return up to 14%-ish, slightly higher. But like I said, it's highly dispersed across one vintage year. So, in 2024, it was only 6.2%. in 2022 and 23 it was actually negative

So it's very volatile over the years.

So, because of this high risk, it's important how the venture capitalists reduce the risk. So they fund the ventures in stages. So they reassess management team and performance in each stage. So when they provide funding, they provide funding stage by stage. And if a company's progress is satisfactory, then they provide more funding, right? there could be like venture capitals where they

specialize in these different stages of the funding. And they also take an equity interest. Equity interest as opposed to what? As opposed to debt, right? So instead of usually just lending money with fixed interest, they take some equity interest. Why? We talked about the payoff to equity, right? Because equity holders, they enjoy the upside potential.

So, in order for the capital providers to have any upside potential, they take equity interest. So, for example, convertible preferred stock, which is quite popular in the U.S., so the VC enjoy the seniority among equity holders. Why? Because it's a preferred stock. So, preferred stocks have priority over common stockholders. So, that's the – they enjoy the seniority. But while having upside potential because they can convert the preferred stock to common stock later on if the company does well.

So their downside is protected by this preferred aspect, and they also enjoy the upside from this convertibility. In the Korean case, what's very popular in the Korean we see is Redeemable Convertible Preferred Stock, abbreviated as RCPS.

So this is convertible preferred stock. This is the same as the US. The difference is that now there is another adjective here called redeemable, which is not shown here. This redeemable is another layer of outside protection to the VC.

So it means that the capital provider, VCs who provided the capital, can redeem their investment from the company. So if the company does not do well, the VC can ask the company to pay back.

they can redeem their investment which is a very big downside protection given to the overseas and

So in the Korean startup environment, there is more bargaining power to the VCs compared to the case in the U.S. So this contract that they make is a little bit unfair to the startup companies.

And sometimes the VCs can require entrepreneurs to make personal investment to the company. And this is to make the entrepreneurs align their interests to make them actually work hard. Because if they have their personal investment in the company, they really work hard.

So, this is a continuation of how venture capitalists reduce risk. They form an investment syndicate where the main VC investor shares the deal with other VC investors so that several investors jointly finance the startups. So, they form like a group.

And they maintain in-depth knowledge about the industry. They use for not just making their investment decisions, but also provide advice and counseling for entrepreneurs during early stages of operation. And they have an exit strategy. Venture capitalists are not long-term investors. They usually exit over a period of three to seven years. And venture capital agreements often include provisions specifying who has the authority to keep over exit decisions, including timing, method, and acceptable price. So all of these terms will be written on the contract.

when the venture capitals provide financing to the company. Here's the method of exit strategy. And these are the two main methods that I explained before. One is IPO, which is selling common stock in an initial public offering. And the other one is M&A. M&A could be selling the company to either a strategic buyer or to a financial buyer.

This is a financial buyer, is a strategic buyer selling the firm's equity to a strategic buyer in a private market. Financial buyer is a private equity firm who buys the firm, but this private equity firm is the financial buyer.

with the intention of holding it for a period of time, usually three to five years, and then selling for a higher price. So as the name suggests, financial buyer is buying the company only to gain financial performance. So to gain financial gain. So financial buyer is the objective is to buy the company at a

at a currently low price. And then hopefully when the company value goes up later, they intend to sell to another buyer at a higher price. So the motivation of a financial buyer is just to make profit by buying low and selling higher at a higher price.

The popularity or the prevalence between these two is very different in the Korean case versus the US case. In the US there's lots of M&As of the startup company. So a lot of startup companies get acquired.

by a larger company. But in Korean case, there's not much M&A.

So, if, because in Korea there's not that much active M&A market compared to the US, it has to go either through an IPO or the founder or the VCs would exit through what we call the so they would sell part of the company.

privately to some other people. So that's different from M&A because M&A is like the entire company is sold to another investor. But what I mean by Changwei Mega is selling a part of the company's statement

to some investors, so it's just a partial sale of the company. So that's typically how the founder or the VCs can exit their position of the company through selling their shares to another investor, not the entire company. Or they could try hard with an IPO. So if you're in the U.S., if you compare the number of cases on how the startup companies exit,

There is many more MNAs compared to an IPO in the US.

So, this one is the topic for later chapter, talk about M&A. This chapter will talk about this IP. Why is there not a lot of...

there's not that many maybe because i think it's because of many different reasons because the the the regulation on the mna is too strict in the korean case and it's i mean one one example is like like in korea there used to be this now they're changing the law they say but like this for one example it's like this pj right so if a company does something and and it turns out that it was a wrong decision for the company right then the company could be liable

And the executives could go to the prison based on that page, which makes the company executive be very risk averse when they're trying to do like this risk taping M&As. So these days they're trying to like lessen the burden of the company by refining those laws.

So some of it could be due to these regulatory problems. Another reason is typically these larger companies that buy the smaller companies. But as we know in Korea, the larger companies, they just start their own business.

instead of acquiring some other company. So maybe like Kakao, right? They just have their own startup firms within themselves. Because it's like a conglomerate.

Is it common for founders to exit right after the IPO? Oh yeah, that's a good question. We'll talk about that. So the founder could exit at the time of the IPO. Some founders can exit even before the IPO. that I explained before.

And some founders can exit sometime after the IPO. So all of those can happen. And some of it is bound by this agreement. When they sign up this agreement with the venture capitals, there could be some restrictions on how the founders can exit.

and how the VCs can exit. So if the founder exits at the time of the IPO, right, they could be selling their shares at the time of the IPO along with the new shares that are issued at the IPO. Right. So that's what...

Some existing shareholders can sell the shares at the time of the IPO. And after the IPO, they can also sell their shares. But even that, there's also a regulatory thing where there could be like a lockup agreement

there's a lockup period where the existing shareholders cannot sell the shares until some time after the IPO. So many IPOs could have that lockup agreement like 30 days or 60 days, right, where the existing shareholders cannot sell their shares until that period passes.

That's what I think it translated as"보호 예수 기간" "lock up period"

So, yeah, we'll talk about the advantages and the disadvantage for today's class, and then we'll get into the investment bank services in our next class. Okay, so advantages, obviously there's lots of advantages to doing an IP, but there's also disadvantages of doing an IP.

The advantage is that equity, right, they tap into the equity capital market. So the amount of equity capital that can be raised in the public equity market is typically larger than the amount that can be raised through private sources. So one main example of private sources of getting equity investment was through pre-seas that I explained before, right?

give shares to the VCs. But this is from a general public investment. And the amount that can be raised through an IPO is much greater than the amount that can be raised through private sources like venture capitals. And it's not just for at the time of the IPO, but also looking forward, additional equity capital can be raised through follow-up equity offerings.

after the IPO, which we call"Yu Sang Jig Da" So in English it's called seasoned equity offering. So it's an equity offering by a seasoned company, which means that a company that has already done an IPO, SEO. So here SEO does not mean search engine optimization, just seasoned equity offering.

I mean, back in the days, there wasn't a term called search engine optimization. But these days, I guess if you say SEO, people would think it's just search engine optimization. Anyway, it's a seasoned equity offering. And if a company does an IPO, they can do SEO and get more capital.

Now from the shareholders perspective, whether the shareholders are existing shareholders like founders or VCs or it could be new shareholders, the fact that there's an active secondary market is good, secondary market or

They can easily sell the shares that they have. Easier to attract and retain employees using stock-based compensation. There's many other advantages of going public. I mean, you can think like if a company is listed in the stock market, it's usually covered more by the media. So it's like a free advertisement in some sense.

And disadvantages, high cost of an IPO, it's very costly. We'll talk more about this later. So it's not just direct cost, there's also indirect cost of doing an IPO. So this will be talk about the cost here in slide 25. What are the costs of an IPO?

This is direct/indirect cost. We'll talk about that later. Ongoing compliance cost related to disclosure requirement, , investor relations, audits, internal control, exchange rules,

The reason why there's all these requirements is because now there are these small retail investors that invest their money into this company. So the regulators feel that there should be some protection given to these small investors who may not have enough knowledge or expertise in their investment. So they want the companies to provide adequate information to these public investors so the public investors can make a fair investment decision.

That's why there's all these rules. If you compare a private company, an unlisted company versus a public company, right, there's so much things that this public company needs to do to keep up with this regulation requirement. So that's costly in itself. So for example, in Korea, these financial service companies,

What we see, it's a jingkwonwiong, kumumwiong, I'm not sure which one is which. And this is a Korea exchange disclosure requirement, including file links through this doc system. So doing this in itself, there would be a lot of direct costs.

money would have to be spent on this, right? And then you have to hire lots of accountants and all these people who can do this. And the indirect cause is because this provides high transparency, I mean, that's the intention of the rules, right? So that outside investors can have better information about the company to lower the level of information asymmetry, right? But if you look at it from the company's perspective, that could be detrimental, maintaining like a competitive advantage,

can't keep it to their secret anymore. Because everything has to be revealed to the outside. And if it's revealed to the outside, it's not just public investors who get that information, it's also the competitors who get that information. So more information is revealed, which may not be good for maintaining competitive advantage. They can't keep it to themselves.

And when a company is listed in a stock exchange, they tend to be like have more pressure to produce something in a short term. So they're more pressure to keep a high stock price. They have to report this periodically. Every quarter they have to report their earnings.

and they're scrutinized by lots of analysts, and there would be lots of institutional investors who invest in this company who may be pressurizing the company to perform well. So if you think of it like this public, this listed company versus like a family company, if you're running a family company, you wouldn't focus too much on a short-term profit. Thank you.

But if you're managing this public company because there's so many stakeholders, you feel a lot of pressure to produce something on a short-term basis. So there's a lot of pressure to generate something on a very short-term basis. They tend to be like short-term or like 근시한 적경.

And this is very natural because I mentioned here, I mean, it's good that you could attract top-tier managers, outside managers coming in who are very talented, right?

I mean, managers, it's not like the manager is going to do this job for their entire life. It's like two, three years. Like there's a certain number of years that they will work for this company, right? So as a human being, if you have a certain term of employment at this company, right?

You're not worried about how this company will do 20 or 30 years from now. You want this company to do well within your term. So obviously it's going to be short-term oriented. It wouldn't be the case for a family.

I mean, this happens not just in corporations, but everywhere, right? Whenever there's a certain term of employment, this only happens. Like politicians, right? They want, they need some vote at the election.

They're not going to be politicians for 50 years. So in politics this happens. Also like in schools, like a dean, the dean has like two years of employment. So the same thing could happen. So anywhere when there's like a term of service, this would happen. I mean, it would happen more in the case.

Because there's like stock options in there. So because of this, it's like company going from private to a public company. Here public meaning not but listed company.

상장 기업 through an IPO. It's not a one-way process. Sometimes the reverse could happen because it is disadvantage. So if a company thinks that this is becoming too much or a lot of agency problem is happening because of this, then this could happen. One example was like an LBO case.

This is taking the company private. So we'll talk about the process on this for which finishing.

- Right. - Price, which is just a single number. This is stage one, this is stage two. So to find the price range, right, is just using this multiples approach. Find a range. And then we'll show in book building. So management team and underwriter visit potential institutional investors. These days, many are done online.

So back in the days because they were visiting actually physically visiting individual investors like these big mutual funds, hedge funds, pension funds, they would go to those headquarters of those companies, they got a pitch of the company with a IR.

presentation. So that's why it was called a road show. Now these are many of the visitors online. So one major source of online road show, which initially was intended when they first did this road show online, it was mainly intended for the individual investors, right? The retail investors.

So the site name is also retailwowshow.com

This site is the original compiler of the in the regional. So it was this website as well. Maybe I can show you one of the row shows. So here, what the main thing that's done in the row show is the book building, and what

Underwriter asks investors to indicate how many shares they plan to buy and at what price they are going to buy. So, they build this book, right, a ledger called the book, and based on demand, Underwriter says we find a lot of the price. So, by asking these investors, the potential investors, like the...

the money managers of some mutual fund or money managers of some hedge fund, the company asks what they plan to buy and at what price. So the company can gather information such as for each of the investors, you could have

ABC hedge fund gave out an indication of interest to buy how many shares. Let's say they indicated they want to buy 1 million shares and the price that they would

And these guys said they're willing to buy a $20 share. And then some other investors like XYG Pension Fund, the manager there said that we want to buy 2 billion shares at a price of $21 share.

So they gathered this in the investment bank gathered this information and using this information they sent the offerings.

21, 21. Okay. That's why you need to fill in some, sometimes you can check it. It is translated because sometimes it's a few years. So

So this is a little bit blurry. This is what's given to the potential investor. This is the IPO over price range. So this is the lower range. And this is the upper range.

This is decided by the. Then this is the unit of increase in price. So up and down by 100, 101. And this is the unit of the number of shares you buy. So it increases by 1,000 shares.

This is how much money you have in your account. So what the investment bank keys in, key in the system is this. How many shares you want to buy and how and what price you want to buy.

And then this is just a factor, this number times this. So the investment bank, no, the investor, the potential investor of the IPO keys and this information. So the company compiles this.

Then they decide they find the proper price based on how many shares that they want to sell to the IP. So they get this kind of demand schedule from the investor and then they find out the side of the proper price of the demand.

This is a bit of a flexibility that the investment bank have and that's this . So that's the lockup period that the investor is willing to commit. And is saying that I will not

sell the shares until this passes after the IPO. So this is no lockdown period, 15 days, 1 month, 3 months, 6 months. So from the investment bank and the IPO company, they would favor

who have longer non-computed, right? Because they don't want these big guys dumping their shares right after the IPO because they do that stock price. Now, many investors sell the shares. Right? So, if someone has, like, if

we have same mice and whoever wrote this individual local lab could get preferential allocation.

So let's see what's done in the workshop. So this is the typical disclaimer that we have to agree to, basically saying that you should read the whole prospectus and saying that these are forward-looking statements.

Today's presentation contains projections and other forward-looking statements. Forward-looking statements include all comments reflecting our expectations, estimates, projections, assumptions, or beliefs about future events or performance that do not relate solely to historical periods. These statements are subject to risks and uncertainties that can cause actual results in different truths. I think this is a company that requires and manages data centers. These days there's lots of companies that manage data centers.

Really, from our expectations and projections, the company and Blackstone undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. We are contemplating a blind pool offering and do not currently own any properties.

potential investors will not have this line will is where no blind or this word line appears a lot for the real estate companies or

the REITs, where they acquire these infrastructures, where they acquire these real assets. And blind mobility means that we're not going to tell what kind of assets we're going to acquire.

So you have to invest in our company. I think kind of,'cause we don't know, I mean, they may know, but they're not gonna tell what specific assets were, I think, in this case, some data centers that they're going to apply.

the opportunity to evaluate our future investments before we make them. There can be no assurance that we will acquire properties on the terms expected or at all, or that we will be successful in achieving our strategies and objectives. Please refer to our full legal disclaimer on slide 2 of the presentation for additional information.

I'm excited to be here today to talk about Blackstone Digital Infrastructure, Cross-Org, BXDC, in short. A new company managed by Blackstone, focused on acquiring fully stabilized and released mission-critical data centers that power the modern digital infrastructure.

Mike Foreman, Chief Investment Officer, and Tony Maroon, Chief Financial Officer.

I'm Nick Pell, I'm the CEO of the company. I've spent the last seven years as President Van Pelt for 13U. I'm sure it's getting much harder to build. Power, labor, zoning, and supply infrastructure will be huge. Black Foreman, Stephen,

Spanish, right on, right on. My phone, I feel like I'm going to. Portrait.

The anchor about him will be used to pay the purchase price.

So this is the, we have the, in the opening summary you have the issuer name, the ticker symbol, which is the symbol where the stock will be traded within the exchange and it will be listed in New York Stock Exchange. It has number of common stocks that will be issued, they will issue.

70, 80, 87.5 billion shares. So it says 100% primary shares, which means that these are all shares that are issued for the first time. So none of the shares are sold by existing shareholders. You also see some other companies where when they do an IPO, it's like,

For example, 80% primary shares and 20% secondary shares. But here it's just 100% primary shares. So it includes bonus shares. So the bonus share, the context, it depends on different phases of the idea. It could be like if someone or some specific shareholder that they're going, specific investor they're going to allocate the shares, then maybe give some extra shareholder shares to those specific share investors that they give preferential.

allocation. Filing price per share is $20 per share. So in this case, in this company case, the IPO offering price is set at $20. So this sometimes the this offering summary is published before the IPO offering price is set and in that case what you will see is a price rate

In this case, it is already set, so the IPO offering price is determined before this offering summary is published. The IPO price is $20, expected gross gross yield is this number times this. So this is the total amount of

amount that is raised from the IPO. But it's not actually the amount that the company receives because like I said before, some like 7% of this money would be given to the investment bank. So the actual money that the company gets is like

This minus the fee. And then directly share programs, sometimes companies have this. So this is where shares are allocated to some specific investors and maybe to the employees as well. In the Korean phase it could be like.

employee stock option program, something like that. So sometimes companies have this. Over allotment option is what we will talk about later in this chapter. So most companies have over allotment option up to 15%. They have use of proceeds, what they intend to use using this money.

We have the lead active book runners, old and soft city group, Morgan Stanley. And we have the lock of trivia for this legislative ITU. So that's some of the information included in the offering.

We'll also look at another example in the Korean case of change reader. So they set the price range first and then decide the finalized for price using this. You see just by looking at this, the mechanism is like auction.

It's very similar to an auction, but auction is very mechanical. There's no flexibility. But in the book building process, company uses this information and they can decide the offer price. It's up to that investment. They can decide based on this information. They can also decide how to allocate the shares.

So it's kind of like a black box. The outside investors actually don't know how the offer price was set because this information is not revealed to the public. Only the investment bank and the company knows this. Based on this information, they have some discretion on deciding the offer price.

and the allocation. And we'll see later on, when we look at the first day return, because the first day return is positive, I already gave you the answer there, it's usually positive, it seems like the offer price was set a little bit low. And we'll see why that happens with the Spark.

최연호, 김재우, 공민우, 박보영, 이승윤, 주재윤, 김준화, 김민주,

정태우, 양준호, 이종우, 이은규, 김매린, 강빈석, 최정우, 이종학, 이수정, 박현우

박원욱, 따핵, 박웅비, 권유영, 이신형, 정주환, 남지호, 엄정원, 허정욱, 최호빈, 이예찬,

김진봉, 정서윤, 이선익, 소유인, 김재원, 임채림, 임채양, 송태민, 임준균, 노지국, 정윤대,

신서연, 한서윤, 강예랑, 이정, 이선호, 양지우, 안규민, 주무범준, 우민석

김민규 이보원 조은성 장경우 른따빈 정승현 중심원 릴베이슨 브릿젤 랜드

렌즈, 라이안, 백핸진, 지파로우, 에이빈,

Well, good afternoon. We are going to present in the topic of the"Lifgai-gobbism" that is being performed by Ishaan's Purpose, Method and Corporate Governance Church. First, we will explain about the meaning of"S""E""Proposes" and"Methode" of"E" Then, we will explain the right-hand directions according to the"Proposes" and"Methode"

Lastly, we will explain special characteristics of SEO issues or rights due to Korea's corporate webinars at the end. SEO refers to increasing the number of shares by receiving cash for first funding assets in kind of such as land or buildings. In contrast, a bonus issue refers to increased new capital by adjusting PPP items

a balance sheet without any new contractions from shareable. For our presentation today, we will focus on SE. SEO is divided into three methods depending on the source.

Now, I will explain the issue's purposes. There are four purposes: 1. It is conducted to secure working capital, or financing restructing, to use for capex, and for M&A, or acquisition, for equity stakes. 1. Working capital is securing cash for daily business operations. 2. Financial restructing is done for debt repayment and improving stability. Through the character, its aperture

It is conducted for corporate investments such as factory expansion, equipment investment, R&D. Also, it is conducted for business expansion and acquisition of other firms' shares such as M&A for acquisition or EPP states. According to these purposes, the market shows various reactions.

First, working tax term improves immediate cash liquidity, but the market reaction rate stops among the cash trophy. While it can solve the immediate cash liquidity problem, it is read as a signal of low profitability and shows a relative devaluation. For financing and restructuring, there are reactions that might reduce the interest burden, but there is a risk of share being diluted.

However, because it can eventually reduce default risk relatively, it seems slightly good. For CAPEX, there are worries about investment failure. Because it usually seems as having a high possibility of returning its large future profile, it is often recognized as good use.

In the case of acquisition of 80 states, there are concerns about whether they are trying to buy the target company that was overvaluation or whether synergy will be well-exhibited under acquisition. However, since it has the advantage of expanding the business, it tends to be recognized positively. But, exceptionally in Korea, because this problem is related to the problem of circular share parking is often related negatively. This will be dispersed later, then I will explain SEO which varies according to the method.

SEO is divided into three methods depending on to prove the new shareholder allocating, as each method has been inherently different characteristics in terms of funding speed, both structure and legacy. First, WISE offering is the method of prioritizing the granting of new share subscriptions vice to existing shareholders in proportion to their shareholder bodies.

Since the existing shareholders' ownership ratio is maintained, the dilution effect is not low, and it is evaluated as the most sweepable structure in terms of protecting shareholder interest. However, there is a risk of undersubscription and it takes time and pause compared to other methods due to the critical.

preparation of prospectus and suppression procedures. In terms of market reaction, since existing shareholders autonomously decide whether to acquire shares of pendants for increased demand for transparency regarding the purpose of the fund raised. The next public offering is the next of publicly recruiting with shares targeting on specific

multitude of general investors. It is advantageous for large-scale funding because it can utilize a wide pool of investors, and an effect of enhancing corporate recognition can also be effective. However, the dilution of existing shareholders' equity is inevitable, and issuance costs are hot due to strict regulatory requirements such as submitting a registered statement. Theoretically, from the perspective of market-typing theory, the point at which a company chooses a public offering

itself become a factor signaling, advantage of perception of stock or valuation to the market. And in the program market, as we will see later, the program where rates fund are utilized for purchasing affiliate shares, whether or not for business investors, empirically come back.

The other method is private placement method of directly allocating users to specific institutional investors, strategic investors, financial investors or related parties. Since it is conducted through consultation between the parties via the separate home subscription procedures, it has the advantage of the faintest folding speed and flexible structural design.

Due to this characteristic, it is often utilized for the purpose of securing urgent liquidity or building strategic partnership. However, the structural characteristic of the allocation target being a specific person, when combined with information asymmetry, can lead to serious agency problems.

Especially under Korea's cyber governance structure, cases are repeatedly appearing where controlling share progress or linked purchase are used as a location target to"translend the owner-family management plan" or to prepare resource for the session. Dapp2e-T-T-Swap is the method of converting existing debt into shares without cash inflows.

which in a strict sense correspond to reorganization of the financial structure rather than real-time job-wise. So it is hard to see. There is an effect of improving the debt ratio as the liability item on the balance sheet with an equity increase. And the short-term cash flow burden is also a huge difference.

but limited into the reduction in interest expenses. However, since this method is often conducted at the request of creditors, it is often free to understand if not as a financing tool voluntarily chosen by the company, but as a risk structuring tool inevitably accepted in a situation of financial crisis.

This table shows the three lessons mentioned earlier along with them to activate soon. A key takeaway from this table is the concept of tunnel. If you see the private placement row and the key signal to market column, you can find the tunneling word. Tunneling refers to a practice where controlling shareholders transfer assets or profits from a firm to damsel or personal gain.

In the context of private place month, this can be particularly thorough and lengthy. Controlling families may use private place month to issue new shares at a discounted price to themselves or their families. By doing so, they can increase their ownership to facilitate wealth, succession, and lower cost, while effectively diluting the value for minority shareholders.

This represents a significant agency firm where the interest of the dominant shareholders are creating ties over the overall value of the firm. Now, I will explain the effects of SEO on firm-beving based on financial deals. To analyze the corporate value effect of SEO, three financial deals are applied.

According to MM theory, under the assumption of a perfect capital market, the capital rating method does not affect the company fame. However, because tax, bankruptcy costs, and all over, information as linearly exists, this assumption does not fall and this fame becomes the charting point for two years.

to other EOS, Packing Order Zero and Mark and Time Zero. So SEO does not become a big problem in MTO. However, Packing Order Zero is a sign that forms raise funds in order of low information of cemetery cost, namely internal ETT and death after external ETT issuance.

From this perspective, the choice of SEO signals to the market are financial marginal situations where both income, equity, and debt are exhausted, and this becomes a theoretical basis for the dollar pressure on the stock price. Next, let's look at the market timing theory.

Market imagery views that firms conduct SEO at the point when they judge their own stock price to be overvalued. That is when the cost of equity enters its limits. The market has to interpret its action as the management pursuing the stock of valuations and reacts with the stock price limit.

Now, let's take a look how theoretical predictions appear in the actual capital market can be confirmed during major empirical studies. Regarding SHORT, one announcement effect analyzed the C-A-R cumulative of novel returns for two days after the SEO announcement in the US market has confirmed that a significant Top price decline was about -3% on other computers.

Marshellers and Coa also reported that the stock price declined by -3.25% on average before and after the announcement. Both studies notary public prove that the SEO announcement itself acts as a negative signal under information of the HRA.

which is consistent with the quick prediction of packing order theory and market timing theory. Regarding role model under performance, Lager and Witter analyzed the long-term performance for client peers after the mission targeting US FEO company boards 1970 to 1990.

Compared to non-issuing companies of the same size, the stock of SEO companies record about 15 to 13% lower return for a 5-year cumulative basis. And this phenomenon is called the SEO"Roll Run Under Performance Puzzle". This is interpreted as a result of actually

reflecting the management perception of stock overgradation explained in the mercantile period. Also, regarding differential effects according to the funded composites, Zhao and Qin empirically proved that the low-pound stock performance is significantly depreciated according to the chemical

to meet the SE. Moreover, we can observe distinct empirical evidence within the context of the Korean market. A general analyze Korean market data and confirm that only the white offerings method led to an increase in capex and already expenditures its cost. On the other hand, more than 33% of the funds raised through public offerings were used to purchase share of other affiliates and the probability of delisting or change of control shareholder within two years for that e-kit fund.

and private business companies, reaching 51.1% and 55.3% respectively. This is empirical evidence showing that Asia free course and tunneling problems operate much more structurally in Korea. Also, we will explain.

Let's take a look at the table. We can summarize like this: Companies with SEO for the purpose of top-head tag, relatively good long-term performance. But in the case of that repay month or working capital replacement month, long-term underperformance was a million. This means:

that whether the use of funds is a real investment, MPB is positive is a key determinant of the co-proving value defect and provides the theoretical foundation for the analysis of the objective method combination summarized in the paper. In short, we can see the most positive market ratio when capital is raised for CAPEX or MNA.

through a life offering, as this approach effectively protects a waste share dilution. A critical point to observe here is that private placement intended for control or succession has a strongly negative impact. This is a particularly sensitive issue in the Korean market.

We will explain this topic also later in the presentation. So, let's take a look at where we're examined. First is Samsung. Samsung BioLogic conducts a $3.2 trillion won right offering for the purpose of acquiring shares of Samsung BioApps and establishing the fourth plan.

A structure where 3.2 trillion won flowing in a strong financing activity was immediately flowed out as investment cash flow, named in the conversion into real assets with empty disposities, was verified through a cash flow statement. As bio-appists become a subsidiary and non-contracted interest disappeared, net income attributable to the control and shareholder increase defending EPS dilution. This case where the stock price was defended despite concern of oversupply pressure is a representative domestic case joint that right of foreign government CAPEX or M&A purposes can enhance corporate income.

Next example is Tesla. Tesla raised a total of about 12 billion trope small people at the markets of issuance during the year 2020. These raised funds are put in gigafactory expansion, production capacity increase, and working capital expansion. From the perspective of market timing theory, these issuance interpreted as a capital weight in a typical market overvaluation period, in that it was concentrated at a point when the stock price surged more than several times compared to the beginning of the year.

What is not worth it is that unlike the pattern where stock prices usually fall after a company as you announced, in Tesla case, aggressive capex investment plans and high growth expectations for the EV market combined to offset concern over equity dilution. This is a case showing that if the value of the growth option is large enough, the negative signal effect of market time injury can be diluted.

However, there were also negative reactions. Boeing carried out a large-scale stock issuance for 19 billion units, that means the financial crisis caused by Boeing 737-X-20 defense, and the preliminary death burden. The funding objective was not new investment and bond, stabilizing the financial structure and securing liquidity. And it sent a strong financial marginal signal to the market in that it chose the last resort of financing on the hacking order deal.

Persons of an appred rating downgrade were raised before and after the announcement. An investor reflected both the large scale of equity dilution and the uncertainty of fundamental regime competitiveness recovered, though the issuance took place at the year's low stock price level. This case shows that when an SEO for debt repayment operating funds offered equity combined with signals of interior piece of property for the managers, depending on the damage to corporate

Next example is DGV. This was an SEO for the purpose of raising operating funds to compensate for accumulated defeats after the pandemic. And it was recognized by the market as a structure covering losses with shareholder funds without the creation of operating cash flow.

From the perspective of packing oil theory, it was interpreted as the last resort where both internal equity and debt was exhausted, acting as the typical financial marginals even. Immediately after the announcement, the stock price plumed and resulted in a reduction in the amount raised compared to the initial target due to the chain decline in the new stock issuance

This is a case consistent with the analysis of JAW that SEO for operating funds proposed consistently results in long-term underperformance or imperial funds. So far, I have introduced the effects of SEO on their purpose and method. We now turn to a broader question: Why does Korean bracket react socially properly to SEOs compared to global peers? To answer this, we first look at how appellions are generally perceived all over. Before turning to the structure, we look at the results unique to the product.

In most developed markets, seasoned equity offerings are evaluated primarily based on the credit C of the company, the company's growth strategy, and so proceeds. Although it has short-term evolution concerns, investors are more willing to read equity issues favorably when capital is user-free.

So, there were three core reasons why we thought Olimarthus may view SEOs in a positive light. First, unlike debt financing, equity does not carry interest-long evictions for repayment pressures, meaning it actually transcends a company's capital structure. Second, SEOs allows companies to raise significant capital for large-scale initiatives, capex, and then any more R&D without risking the debt of debt, which we had at least last earlier. Finally, the increase in equity base reduces default risk, including overall health. Now, together, these factors explain why SEOs can serve as powerful financing tools and why in transparent, well-governed markets, investors are more willing to evaluate them by the net worth. And this didn't contrast to the reality of magnitude and persistence of negative market reactions after the SEOs were much more persistent.

So in terms of the initial negative effects, we've attributed to market timing theory and dilution. Now in terms of the scale and the pervasiveness of the negative effects in Korea, this is because investors are often concerned not only about dilution itself, but also about corporate governance risk, potential tunneling, and the possibility that equity issuance may be used for shared holdages as opposed to value creation. for sharebookers.

So once again, I've kind of loaded these points. The three points that I want to talk about is first, circular shareholder and similar government structures, which create concerns that equity offerings may be used to reinforce food control. Second is the use of SEOs as instruments for management succession in support of insolvent affiliates, which raises concerns regarding whether the proceeds are truly being supported. And then finally, the weak minority shareholder protection and broader corporate governance concerns have contributed to the so-called"dispout".

So let's take a closer look at case of structural reason number one, which is circular shareholder. Through this system, a controlling shareholder can maintain influence over entire business group while holding relatively small target ownership. So this diagram on the right shows some circular shareholders.

and how this is something that has a very bad effect. And this picture refers to this structure of it during April 2018. And at the top, we can see Samsung CNT, which functions as the de facto holding company of the group and serves as the key entity through which the controlling family takes place. So as you can see, CNT owns approximately 20% of Samsung Life Insurance. Life Insurance owns around 50% of buyer and company. Environment then holds 1.4% of Electronics. And then Electronics owns 24% of Electromechanics, which moves back to Samsung CNT at a 2.64 state. So this completes the circular structure, and this structure becomes especially relevant in the context of SEOs.

When one listed affiliate conducts a large equity offering, minority shareholders absorb the valuation, yet the economic benefits don't necessarily flow back to that company. Instead, the proceeds may strengthen group-wide control, while intra-group transfers will benefit affiliated entities that the controlling family privately owes at a higher state.

So, as a result, SEOs in Korea are freely perceived not as growth financing events, but as tools to consolidate Chevalier control, and this structural suspicion is what drives the immediate negative stock price reaction. In terms of the structural cost number two, we mentioned management succession issues. So in Chevalier groups, equity offerings are sometimes associated with management succession, facilitating the transfer of controlling states from one generation of devaluing capital to the price, and rights offering are also linked to strategic restructuring investments, spinoffs, and large-scale M&A that serve group-level objectives. Beyond succession, investors worry that proceeds may be diverted to support financial affiliates elsewhere in the group, propping up and solving subsidiaries rather than funding the participants.

And the final cause, or the third issue, is insufficient minority shareable protection. So compared to global peers, Korean companies have historically returned far less capital to shareholders. According to Korea's Financial Service Commission, Kumi URAN, Korea's dividend payout ratio stayed at just 20% in 2022, which is half the rate of the U.S., which holds at 40%, less than half of the U.K., which holds at 26%. So Korea's investors are already at a disadvantage, but compounding on top of this, major equity offerings are often announced without prior shareholder communication or compensatory measures for action, leaving investors to disorder the decision that they have to make.

So together these factors, low shareholder returns, poor disclosure practices, explain why Korean investors enter every SEO announcement already prime from production. Next we're going to take a look at Hanai Aerospace. So in 2025, the company announced the $3.7 trillion fund, Rice Operating, which was the largest SEO in the cost of history. And the stated use of proceeds were clearly growth-oriented. Overseas, defense expansion, domestic defense, capex, shipbuilding investment, and UAV engine development. On top of this, the company had recorded approximately $1.7 trillion in operating profit, which means that it was fundamentally strong at the time of issuance. Yet despite these strong fundamentals, the stock fell more than 13% on announcement take. And the key reason was governing's concerns. So what happened was just one week before the SEO announcement, Hanai Aerospace had paid 1.3 trillion won to acquire, put on ocean shares

from Hana Energy, a company 100% owned by the chairman's three sons. So investors immediately interpret this as,"Oh, Hana Aerospace depleted its cash by paying the founding family for the entity, then turned around and asked minority shareholders to replenish that cash through an equity offering." So in other words, even though the stated purpose was legitimate for investment, the Tevar ownership structure made Towing Suspicious structurally own.

The second case that we kind of brought in as a comparison was the Zoom video communications. And this is a contrasting case, an arguably stronger one that, an arguably stronger one to get to understand the insights of this case. So in January 2021, Zoom closed the $2 billion F3 offering, which exceeded its initial target. And what makes this case interesting is the conditions under which this SEO occurred. So Zoom stocks had surged over 700% during the testing, a classic overvaluation signal. And Zoom CFO has stated that the proceeds had no specific designated use, simply preserving balance sheet flexibility. So by conventional theory that was both learned in class and also in the past, it was a very

presented earlier, those factors point toward a very negative market reaction, yet Zoom's stocks rose 5.7% on announcement date. One plausible explanation is governance structure. So Zoom has fully dispersed institutional ownership, no controlling family, no circular cost share holding, private entities that could benefit from capital allocation, and investors have no governance ambiguity to the pricing. And this contrasted with Hala, and this contrast is therefore not simply Korea versus the US. It points to what changes when governance uncertainty is removed from the question.

Now, this slide compares, or the comparisons bring together the central argument of our suspicion, which is that HANA Aerospace and Zoom both conducted large equity offerings with growth-oriented rationales with strong underlying fundamentals, yet the market reactions were very, very different. A 13% decline versus a 5.7% a day. Now, we admit that the two cases may not be perfect substitutes. The dilution ratios due to burn and Zoom's growth was partly pandemic-driven, but even accounting for these differences, the gap in market reaction was too largely explained by financial metrics below. So, the difference comes down to governance, and as we've seen throughout this presentation, as long as jäber ownership structures remain unchanged, Korean firms will continue to pay a market penalty that their fundamentals of Rome do not warrant. Our analysis points to three areas where structural requirements needed and unique. First is strengthening minority shareholder.

By enforcing meaningful fiduciary duties and expanding shareholder rights beyond what currently exists on paper, mandatory trade announcement disclosures requiring companies to specify use of proceeds and disclose intergroup transactions before SEO is not after. And the final thing with the structural unwinding of circular shareholder. Korea's 2014 ban on new circular ownership was indeed a separate word, but existing legacy structures still. Accelerating their discount myth removes the structural conditions that makes tunneling possible in the first place. So the goal is not to make Korean SEOs look like a reference, but the goal is to ensure that when a Korean company does raise capital for genuine growth, the market can actually change.

And with that, that is the end of the presentation.

In your fall.

Yes, man.

Thank you.