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MACQUARIE KOREA INFRASTRUCTURE FUND 2009 ANNUAL REPORT
04 _ Letter to shareholders
06 _ Performance review
08 _ Portfolio
10 _ Derisking of the portfolio through successful asset openings
12 _ Asset snapshot
26 _ Corporate governance statement
30 _ Environment and social responsibility management
31 _ Non-consolidated financial statements
CONTENTS
Cover and Inside cover: Incheon Grand BridgePhotographed by Bong-Eui, Hong
MARKET CAPITALISATION 1
KRW1.6 trillion (US$ 1.4 billion)
EXCHANGE
KRX - 088980.KS LSE - MKIF.LI
Established in December 2002, MKIFs mandate is to invest in concession companies that construct or operateinfrastructure assets in Korea. MKIF invests in these concession companies through equity and debt. MKIF is focusedon generating profits from its investments and distributing these profits to its shareholders.
MKIFs investment strategy is implemented by its manager, Macquarie Shinhan Infrastructure Asset Management Co.,Ltd. (MSIAM). MSIAM is a joint venture between Macquarie Capital Funds (Europe) Limited, a member of MacquarieGroup and Shinhan Bank and Shinhan Capital, which are members of the Shinhan Financial Group. MSIAM benefitsfrom the significant expertise and experience of its shareholders in the execution of complex infrastructure investmentsand from their broad array of business and other relationships in Korea.
1. Based on the share price as of 31 December 2009.2. Private Participation in Infrastructure Act (PPI Act) defines infrastructure sectors including roads, railways, ports, energy, airport, communication, water resources, etc.3. Excludes Seosuwon-Osan-Pyungtaek Expressway which was divested in January 2010.
Koreas largest and onlylisted infrastructure
investment company
SHAREHOLDERInternationally diversified with circa 25% international shareholding
MANDATE
To invest in infrastructure assets in Korea as defined under PPI Act 2
INVESTMENTS
14 project companies 3
WEIGHTED AVERAGE AGE OF ASSETS
4 years
SERVICES+550,000 people per day
Letter to shareholders
Dear Shareholders,
It has been a very busy year for the team and I ampleased to report another year of solid results and themany achievements made during the year despite achallenging environment for the industry.
MKIF started 2009 with many challenges in a difficultbusiness environment and finished the year successfullywith an improved outlook, marked most notably by theopening of the new assets. All on time and budget, thefour new assets, representing circa 30 percent ofMKIFs portfolio opened to traffic, signalling a major de-risking of the portfolio, which is now composed mostlyof fully operating businesses. Together with the existingassets, the new assets delivered steady traffic ramp-up,generally surpassing our performance expectations.
Capital management was also an important focus forthe year and MKIF was able to move swiftly to adapt toexternal market changes. Reflecting the on-goingchallenges in the economic environment, MKIFexercised caution, implementing various measures topreserve the financial flexibility of the company. Asignificant amount of cash was generated from variouscapital management activities such as well priced non-core asset sales and securitisations which helped torecycle capital back into the new assets.
Proactively managing its debt, MKIF also successfullyrefinanced its loan facility by extending its maturity toremove refinancing risk for the next five years. Mostnotably, MKIFs near to medium term distributionoutlook was re-aligned to track MKIFs earnings, amove which we believe was appropriate in the currentbusiness environment and in consideration of assetlevel debt amortisation in the medium term. Overall, wehave been able to financially reposition MKIF with moredistribution certainty and flexibility in the future.
Looking ahead, it is expected to be another busy yearfor MKIF. The management of the new assets for aspeedy ramp-up remains as an important focus andvarious efforts are in the process of being implemented.Active management of capital, both at MKIF and theasset level, will also continue with the aim to improvereturns and cash yields for MKIF shareholders in thenear term. In addition, the last construction asset in theportfolio, Busan New Port Phase 2-3, is progressingwell towards opening in early 2012.
Finally, I highlight that MKIF remains a young portfolio ofassets. The weighted average of the operational periodfor the underlying assets is only four years with around25 years of concession term remaining for ourunderlying assets. Moreover, long-term growthprospects are strong, supported by inflation-linkednatural growth built into to each concessions trafficrevenues, providing a firm basis on which MKIF cansustain growth in its distribution capacity. Theeconomic environment remains challenging, howeverMKIF remains a strong value proposition, and we areconfident that we can continue to grow value forshareholders and provide sound services to thecommunities in which MKIF operates. On behalf of theManager and MKIF Board, we thank you for yourongoing support.
Chul Hum Paik Representative DirectorMacquarie Shinhan Infrastructure Asset Management Co., Ltd. Corporate Director and Asset Manager of Macquarie KoreaInfrastructure Fund
04 MACQUARIE KOREA INFRASTRUCTURE FUND
This annual report provides an overview of MKIFs investment and
operating activities for the 12 months from 1 January 2009 to 31
December 2009, as well as information on the performance of
MKIFs assets. It also includes the audited non-consolidated
financial statements for the year.
2009 ANNUAL REPORT 05
1. On a weighted average basis based on revenue size of each asset and the MKIFs equity interest in each concession company. Excludes all new assets whichhave commenced operation since July 2009.
2. Adjusted to remove (i) capital loss of KRW3.6 billion incurred in 2009 and (ii) capital gain of KRW79.4 billion in 2008. 3. Asset level EBITDA on a proportionate basis, excluding all new assets which have commenced operation in 2008 and 2009. Estimated, unaudited figure. 4. Excludes Seosuwon-Osan-Pyungtaek Expressway which was divested in January 2010.5. Operation period of each concession company on a weighted average basis based on respective commitment amount.6. Accounting income recognised in January 2010.
ACHIEVED SOLID OPERATIONAL AND FINANCIAL RESULTS
SUCCESSFUL ASSET OPENINGS
FINANCIAL STRENGTH PRESERVED THROUGH PROACTIVE MANAGEMENT OF CAPITAL
Sale of senior loan- Divestment of MKIFs senior loan commitment of KRW188 billion to Incheon Bridge Co., Ltd., the
concession company of Incheon Grand Bridge- Net cash proceeds of KRW134.5 billion, representing drawn amount up to the divestment date
Securitisation of subordinated loan interest receivable- Securitisation of MKIFs interest receivable on the subordinated loans provided to Cheonan-Nonsan
Expressway Co., Ltd., the concessionaire of Cheonan-Nonsan Expressway- Immediate net cash inflow of KRW29.4 billion
Sale of subordinated loan- Divestment of MKIFs subordinated loan commitment to Kyunggi Highway Co., Ltd., concessionaire of
Seosuwon-Osan-Pyungtaek Expressway - Total cash proceeds of KRW85.7 billion, recognising KRW8.4 billion of income 6
Amendment of the corporate loan facility terms- Refinancing risk reduced through extension of the corporate loan facility maturity until November 2014- Eliminating external financing needs for least 5 years while securing more capital flexibility
- Four new assets commenced operation on time and on budget- Only one out of the 14 assets 4 in the portfolio new remains under construction- Weighted average operation period of the portfolio is 4 years 5
- Underlying traffic volume and revenue 1 growth of 3.0% and 4.8% respectively compared with theprevious corresponding period (pcp)
- Normalised 2 revenue and EBITDA growth of 1.2% and 5.2% respectively on pcp - Proportionate EBITDA margin of 86%3 across the portfolio compared with 85% in 2008
Performance review
06 MACQUARIE KOREA INFRASTRUCTURE FUND
FINANCIAL SUMMARY
RevenueExpenseNet incomeEBITDA
Normalised EBITDA 2
FY 2009 FY 2008 FY 2007
153,97853,755
100,223123,184
126,759
235,06451,364
183,700199,935
120,535
150,48068,44982,03183,753
83,753
1. Includes special gains on (i) securitisation of shareholders loan in Baekyang Tunnel of KRW24.5bn and (ii) divestment of the convertible bonds in New DaeguBusan Expressway of KRW54.9 billion.
2. Adjusted to remove (i) capital loss of KRW3.6 billion incurred in 2009 and (ii) capital gain of KRW79.4 billion in 2008.
Invested AssetsLiabilitiesTotal Shareholders Equity
Total liabilities and shareholders equity
31 December 2009
31 December 2008
31 December 2007
1,964,784463,894
1,690,402
2,154,296
1,929,621359,004
1,740,828
2,099,832
1,668,493112,293
1,702,698
1,824,991
DISTRIBUTION (PER SHARE)
EPSCash distribution Share distribution Number of new shares issued
Total outstanding shares
FY 2009 FY 2008 FY 2007
302390
-7,969,137
331,459,341
554460122
-
323,490,204
254440
--
323,490,204
MKIF achieved solid operational and financial results proving its defensive naturein a challenging business environment
1
(KRW million)
(KRW)
2009 ANNUAL REPORT 07
1. Operation commencement in July 2008. FY2008 figures annualised.2. Based on revenue size of each asset and the MKIF's equity interest in each concession company. Excludes all new assets which have commenced operation
since July 2009.
ANNUAL TRAFFIC AND REVENUE GROWTH
Incheon International Airport Expressway Baekyang Tunnel Gwangju Second Beltway, Section 3-1Gwangju Second Beltway, Section 1Woomyunsan Tunnel Cheonan-Nonsan Expressway Soojungsan TunnelDeagu 4th Beltway EastMachang Bridge 1
Weighted average growth rate 2
Traffic volume growthAsset Traffic revenue growth
(4.3%)(0.7%)14.5%(3.3%)11.1%6.9%
(0.2%)2.5%
17.9%
3.0%
(4.3%)(1.2%)23.7%9.7%
10.7%9.6%
(1.0%)2.5%
11.5%
4.8%
OPERATIONAL MANAGEMENT INITIATIVES IN 2009
MKIF actively manages operation of the assets within its portfolio in order to create long-term value for MKIFshareholders and improve service to the users of the infrastructure assets.
TRAFFIC ENHANCEMENTSeveral traffic enhancement measures have been implemented for the four newly opened assets to accelerate ramp-upof initial traffic. These measures have focused on targeted advertising and improved visual inducement signage.Furthermore Electronic Toll Collection (ETC) systems to improve the traffic flow and service levels have beenimplemented on Cheonan-Nonsan Expressway and Baekyang Tunnel. Toll exemption programs for container trucks inthe Busan area were extended with the Government continuing to compensate MKIFs assets on behalf of the roadcustomers. Similarly, a program to exempt local Inchon city residents from tolls on Incheon Grand Bridge and IncheonInternational Airport Expressway have been implemented with government compensation for the respective assets.With respect to Machang Bridge, construction commenced on a new link road to the central business district ofChangwon city, two years ahead of the citys plan, and is expected to increase the attractiveness of the bridge to users.
OPERATING COST CONTROLOperating cost reductions were achieved on many of MKIFs assets. A significant example was operating costsbudgeted on the newly opened Incheon Grand Bridge, which were reduced by approximately 20% by rationalizingcontracts and moving to direct operation of the asset. MKIFs asset managers strive to actively manage costs andimprove service quality of the assets.
IMPROVED INSURANCE TERMS AND CONDITIONSMKIF has continued to leverage Macquarie Groups global insurance program to reduce overall insurance costs by30% since the programs inception in 2007. The program now involves 12 of MKIFs assets.
08 MACQUARIE KOREA INFRASTRUCTURE FUND
INFRASTRUCTURE SECTOR
Port 13.9%
Subway 4.0%
Toll road 82.1%
INVESTMENT TYPE
Senior debt 15.1%
Sub debt 50.5%
Equity 34.4%
Portfolio
MKIF is expected to create long-term revenue stream and real capital growth forinvestors
Assets
01_ Baekyang Tunnel02_ Gwangju 2nd Beltway, Section 103_ Incheon International Airport Expressway04_ Soojungsan Tunnel05_ Daegu 4th Beltway, East 06_ Cheonan-Nonsan Expressway07_ Woomyunsan Tunnel 08_ Gwangju 2nd Beltway, Section 3-109_ Machang Bridge10_ Yongin-Seoul Expressway11_ Seoul-Chuncheon Expressway12_ Seoul Subway Line 9, Section 113_ Incheon Grand Bridge14_ Seosuwon-Osan-Pyungtaek Expressway 2
15_ Busan New Port Phase 2-3
Total
Percentage (%)
Commitment & Debt interest rate
Equity
(KRW billion)
As of 31 December 2009
Subdebt
Seniordebt Total
Proportion of MKIF portfolio (%)3Ownership (%)
1.213.158.247.157.587.710.728.948.357.848.640.974.5
-66.4
640.9
34.4
-35.251.719.332.0
182.39.6
-51.277.087.433.5 89.480.0
193.0
941.6
50.5
1
1.7142.0
-64.8
---
73.3-------
281.8
15.1
2.9190.3109.9131.289.5
270.020.3
102.299.5
134.8136.074.4
163.980.0
259.4
1,864.3
100.0
0.210.76.27.35.0
15.11.15.75.67.67.64.29.2
-14.5
100.0
100.0100.024.1
100.085.060.036.075.0
100.035.015.024.541.0
-30.0
1. Includes KRW3.2 billion working capital facility. 2. MKIF divested its subordinated loan in Seosuwon-Osan-Pyungtaek Expressway in January 2010.3. Based on the total MKIF investment commitment to all investments in the portfolio. (Excludes Seosuwon-Osan-Pyungtaek Expressway)
2009 ANNUAL REPORT 09
11
6
5
1
15492
8
01_ Baekyang Tunnel
02_ Gwangju 2nd Beltway, Section 1
03_ Incheon International Airport Expressway
04_ Soojungsan Tunnel
05_ Daegu 4th Beltway, East
06_ Cheonan-Nonsan Expressway
07_ Woomyunsan Tunnel
08_ Gwangju 2nd Beltway, Section 3-1
09_ Machang Bridge
10_ Yongin-Seoul Expressway
11_ Seoul-Chuncheon Expressway
12_ Seoul Subway Line 9, Section 1
13_ Incheon Grand Bridge
14_ Seosuwon-Osan-Pyungtaek Expressway(Divestment completed in January 2010)
OPERATING ASSETS
15_ Busan New Port Phase 2-3
ASSET UNDER CONSTRUCTION
GANGWON-DO
DAEGU
CHUNGCHEONGBUK-DO
SEOULINCHEON
CHUNGCHEONGNAM-DO
GWANGJU
BUSAN
MKIFs portfolio represents a mix of asset andinvestment types with a broad geographic
spread throughout Korea
12
73
13 1014
10 MACQUARIE KOREA INFRASTRUCTURE FUND
Opened in July 2009
Yongin-SeoulExpressway
Opened in July 2009
Seoul-ChuncheonExpressway
Derisking of the portfolio throughsuccessful asset openings
2009 ANNUAL REPORT 11
45.5%
Construction
15.2%
28.5%
10.8%
OPERATIONAL STATUS 1
2008
Opened in July 2009
Seoul SubwayLine 9, Section1
Opened in October 2009 Incheon Grand Bridge
Ramp-up Growth
Stage
Description
1.
Construction
Implementation of developmentproposal, involving constructionof the asset and pre-operationtesting andapprovals/certifications
Ramp-up
- Early stages of operation(depending on length ofconcession, could be up to 3-5years after operationcommencement)
- Generally characterised by stronggrowth in patronage and revenueas patrons begin using the asset
Growth
- Phase generally lasts from 2-5years after ramp-up period ends
- Characterised by stable growth intraffic and revenue
Mature
Characterised by steadypatronage, often growingat a rate consistent withlocal GDP, and low levelsof operating risk
42.4%
15.2%
28.5%
13.9%
2009
Mature
12 MACQUARIE KOREA INFRASTRUCTURE FUND
Yongin-Seoul Expressway
OPENED IN JULY 2009
Yongin-Seoul Expressway is a 22.9 km, dual two to three-lanetolled expressway consisting of six bridges, 10 tunnels and sixinterchanges connecting Youngduck-ri, Yongin city to Segok-dong in Seoul. This expressway eases traffic congestion problemson the Suwon-Seoul section of the Seoul-Busan Highway, one ofthe most heavily travelled expressway in Metropolitan Seoul.
Concession Company: Gyungsu Highway Co., Ltd.Opened: July 2009 Concession Term: 30 years to 2039 MRG 1 Period: 10 yearsRelevant Authority: Ministry of Land, Transport and Maritime AffairsTotal commitment: KRW134.8 billion 2
Proportion of MKIF portfolio 3: 7.6%
1. Minimum Revenue Guarantee - revenue support provided by the relevant authority under the concession agreement. 2. Excludes MKIFs conditional commitment to acquire an additional 32% equity interest.3. Based on the total MKIF investment commitment to all investments in the portfolio (Excludes Seosuwon-Osan-Pyungtaek Expressway divested in January 2010).
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
N/A
N/A
38,933
62,381
Category 2008 2009
2009 ANNUAL REPORT 13
OPENED IN JULY 2009
Seoul-Chuncheon Expressway
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
N/A
N/A
30,432
189,115
Category 2008 2009
Seoul-Chuncheon Expressway is a 61.4 km, dual two to three-lane toll expressway providing a link between Seoul andGangwon province, a leading tourist destination in Korea. Theexpressway provides an alternative link between the east part ofSeoul and Chuncheon through Kyunggi province, where theregional expressways and highways experience heavycongestion, especially on weekends.
Concession Company: Seoul-Chuncheon Highway Co., Ltd.Opened: July 2009 Concession Term: 30 years to 2039MRG Period: 15 yearsRelevant Authority: Ministry of Land, Transport and Maritime AffairsTotal commitment: KRW136.0 billionProportion of MKIF portfolio: 7.6%
14 MACQUARIE KOREA INFRASTRUCTURE FUND
Seoul Subway Line 9, Section 1
OPENED IN JULY 2009
Seoul Subway Line 9, Section 1 is a 25.5 km subway lineproviding regular and express service east-west along thesouthside of the Han River, stopping at 25 stations including sixtransfer stations running between Gimpo Airport in western Seoulto Gangnam, through major business and residential districts ofSeoul.
Concession Company: Seoul Metro Line 9 Co., Ltd.Opened: July 2009 Concession Term: 30 years to 2039MRG Period: 15 yearsRelevant Authority: Seoul Metropolitan GovernmentTotal commitment: KRW74.4 billionProportion of MKIF portfolio: 4.2%
TRAFFIC AND REVENUE
Average daily initial boarding(passengers / day)
Average daily revenue(000 KRW)
N/A
N/A
138,010
101,376
Category 2008 2009
2009 ANNUAL REPORT 15
OPENED IN OCTOBER 2009
Incheon Grand Bridge
Incheon Grand Bridge is a 12.3 km, dual three-lane tolled bridgewhich is Koreas longest bridge and the 5th largest cable stayedbridge in the world. It connects Incheon International Airport to therapidly developing commercial area of New Songdo City in theIncheon Free Economic Zone and reduces travel time betweenIncheon city and the airport by up to one hour.
Concession Company: Incheon Bridge Co., Ltd.Opened: October 2009 Concession Term: 30 years to 2039 MRG Period: 15 yearsRelevant Authority: Ministry of Land, Transport and Maritime AffairsTotal commitment: KRW163.9 billionProportion of MKIF portfolio: 9.2%
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
N/A
N/A
25,467
123,188
Category 2008 2009
Incheon International Airport Expressway
Incheon International Expressway is a 40.2 km, dual three to four-lane expressway link between Yongjong Island, site of theIncheon International Airport to Koreas capital, Seoul. It iscomprised of two major bridges - the 4.4 km Yongjong Bridgeand the 2.6 km Banghwa Bridge as well as 630m of GaehwaTunnel.
Concession Company: New Airport Hiway Co., Ltd.Opened: December 2000 Concession Period: 30 years to 2030 (21 years remaining) MRG Period: 20 years Relevant Authority: Ministry of Land, Transport and Maritime AffairsTotal commitment : KRW109.9 billionProportion of MKIF portfolio: 6.2%
16 MACQUARIE KOREA INFRASTRUCTURE FUND
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
64,956
375,192
62,165
359,025
Category 2008 2009
Baekyang Tunnel
Baekyang Tunnel is a 2.3 km, dual two-lane tolled tunnel that runsunderneath Baekyang Mountain in Busan city, providing a linkbetween the Busan central business district, Busan port and thenorthern and western residential areas as well as GimhaeInternational Airport. Beakyang Tunnel was set up to solve severetraffic congestion problems, which are created by the increasingnumber of traffic in and out of Busan port and Gimhae Area, bydistributing urban traffic flows to adjacent major roads.
Concession Company: Baekyang Tunnel Ltd.Opened: January 2000Concession Period: 25 years to 2025 (15 years remaining)MRG Period: 25 years Relevant Authority: Busan Metropolitan CityTotal commitment: KRW2.9 billionProportion of MKIF portfolio: 0.2%
2009 ANNUAL REPORT 17
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
66,989
49,001
66,523
48,426
Category 2008 2009
Gwangju 2nd Beltway, Section 3-1
Gwangju 2nd Beltway Section 3-1 is a 3.5 km dual three-lanetolled expressway running east-west along the southern edge ofGwangju, Koreas fifth largest city with two bridges, two tunnelsand one interchange. This is the second private sector section ofGwangju 2nd Beltway and it provides better access to surroundingcities and eases traffic congestion in and around Gwangju.
Concession Company: Kwangju Ring Road Co., Ltd.Opened: December 2004 Concession Period: 30 years to 2034 (25 years remaining) MRG Period: 30 years Relevant Authority: Gwangju Metropolitan CityTotal commitment: KRW102.2 billionProportion of MKIF portfolio: 5.7%
18 MACQUARIE KOREA INFRASTRUCTURE FUND
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
25,411
20,414
29,091
25,242
Category 2008 2009
Gwangju 2nd Beltway, Section 1
Gwangju 2nd Beltway Section 1 is a 5.6 km dual three-laneexpressway consisting of four tunnels and 10 bridges, runningfrom Kwangju Dooam Interchange to Sotae Interchange. It wasconstructed in response to city expansion and the developmentof industrial areas and to ease traffic congestion on the 1st Beltwayby providing better links to surrounding cities.
Concession Company: Kwangju Beltway Investment Co., Ltd.Opened: January 2001Concession Period: 28 years to 2029 (19 years remaining) MRG Period: 28 years Relevant Authority: Gwangju Metropolitan CityTotal commitment: KRW190.3 billion 1
Proportion of MKIF portfolio: 10.7%
2009 ANNUAL REPORT 19
1. Includes KRW 3.2 billion working capital facility.
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
35,743
31,241
34,576
34,261
Category 2008 2009
Woomyunsan Tunnel
Woomyunsan Tunnel is a 3 km dual lane tolled tunnel runningunderneath Mount Woomyun, providing a direct route betweenthe Seoul suburbs, Kwachon and Anyang. The Tunnel enablestraffic to avoid the longer route of Sadang and Yangjae area,instead travelling directly through Woomyunsan Tunnel viaBanpo-Bridge and the Seoul Arts Centre.
Concession Company: Woomyunsan Infraway Co., Ltd.Opened: January 2004 Concession Period: 30 years to 2034 (24 years remaining) MRG Period: 30 years Relevant Authority: Seoul Metropolitan GovernmentTotal commitment: KRW20.3 billionProportion of MKIF portfolio: 1.1%
20 MACQUARIE KOREA INFRASTRUCTURE FUND
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
21,137
36,778
23,479
40,730
Category 2008 2009
Cheonan-Nonsan Expressway
Cheonan-Nonsan Expressway is an 81 km, dual two-lane tollexpressway between Cheonan and Nonsan, connecting thenorthwestern and southwestern provinces of Korea as part of thenational highway system. It has two major tunnels, 44 bridges andseven interchanges.
Concession Company: Cheonan Nonsan Expressway Co., Ltd.Opened: December 2002Concession Period: 30 years to 2032 (23 years remaining) MRG Period: 20 years Relevant Authority: Ministry of Land, Transport and Maritime AffairsTotal commitment: KRW270 billionProportion of MKIF portfolio: 15.1%
2009 ANNUAL REPORT 21
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
32.209
232,459
34,437
254,698
Category 2008 2009
22 MACQUARIE KOREA INFRASTRUCTURE FUND
Soojungsan Tunnel
Soojungsan Tunnel is 2.3 km, dual two-lane tolled tunnel locatedin Busan, Koreas second largest city. Soojungsan Tunnel servesas an important connection between Busan central businessdistrict, Busans port area which is the largest port in Korea andthe northern and western residential areas as well as GimhaeInternational Airport.
Concession Company: Soojungsan Investment Co., Ltd.Opened: April 2002 Concession Period: 25 years to 2027 (17 years remaining) MRG Period: 25 years Relevant Authority: Busan Metropolitan CityTotal commitment: KRW131.2 billionProportion of MKIF portfolio: 7.3%
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
39,343
29,793
39,283
29,482
Category 2008 2009
Photo does not depict Soojungsan Tunnel
2009 ANNUAL REPORT 23
Daegu 4th Beltway, East
Daegu 4th Beltway, East is a 7.3 Km, dual three-lane expresswayconsisting of three bridge, one underpass and one viaduct. Theexpressway forms the east section of Daegu citys proposedcirculation road, running between north-south along the easternperimeter of Daegu City.
Concession Company: Daegu East Circulation Road Co., Ltd.Opened: September 2002Concession Period: 24 years to 2026 (17 years remaining) MRG Period: 20 years Relevant Authority: Daegu Metropolitan CityTotal commitment: KRW89.5 billionProportion of MKIF portfolio: 5.0%
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
18,359
18,403
18,813
18,865
Category 2008 2009
Machang Bridge
Machang Bridge is a 1.7 km, dual two-lane, cable stayed bridge,providing a bypass for vehicles travelling between the cities ofMasan and Changwon and shortens the costal route betweenBusan and southwestern areas in Gyungsangnam-do Province.Machang Bridge also provides better access to the new Masanport facilities and relieves traffic congestion on existing nationalhighways and expressways.
Concession Company: Machang Bridge Co., Ltd.Opened: July 2008Concession Period: 30 years to 2038 (28 years remaining)MRG Period: 30 years Relevant Authority: Gyungsangnam Provincial GovernmentTotal commitment: KRW99.5 billionProportion of MKIF portfolio: 5.6%
24 MACQUARIE KOREA INFRASTRUCTURE FUND
TRAFFIC AND REVENUE
Average daily traffic(vehicles / day)
Average daily revenue(000 KRW)
10,170
21,736
11,990
24,247
Category 2008 2009
Busan New Port Phase 2-3
One of the national priority projects designed to meet future demanddriven by Busan's position as a regional shipping and logistics hub
Busan New Port Phase 2-3 is a container terminal, consisting of four 50,000 ton berths with a design capacity of 2.7million TEU per year.
Concession Company: Busan New Container Terminal Co., Ltd.Opening: Expected in January 2012Concession Period: 29 years and 3 months from the start of the
operationRelevant Authority: Ministry of Land, Transport and Maritime AffairsTotal commitment: KRW259.4 billionProportion of MKIF portfolio: 14.5%
2009 ANNUAL REPORT 25
UNDER CONSTRUCTION
Photo does not depict Busan New Port Phase 2-3
Corporate governance statement
26 MACQUARIE KOREA INFRASTRUCTURE FUND
MKIFS STRUCTURE
LEGAL FRAMEWORK
MKIF operates under the legal and regulatoryframework established by the Financial InvestmentService and Capital Market Act (FSCMA), and thePrivate Participation in Infrastructure Act (PPI Act). MKIFis required under FSCMA to appoint an asset manager,a custodian, an administrator and a sales agent(collectively the Service Providers).
MKIF BOARD OF DIRECTORS
The MKIF Board of Directors, comprising a majority ofindependent supervisory directors, is responsible foroverseeing MKIF operations, monitoring MKIF businessaffairs (including overseeing the performance of theasset manager and other service providers), capitalmanagement (including share issues) and approvingand monitoring financial and other reporting. The Boardis required to act in the best interests of MKIF and itsshareholders.
The Board is currently comprised of four directors: onecorporate director and three supervisory directors.Under FSCMA and MKIFs Articles of Incorporation(AOI), MKIF is required to have at least one corporatedirector at all times. In accordance with FSCMA, MKIFsmanager, MSIAM is the corporate director and willappoint one of its officers or employees as itsrepresentative on the MKIF Board. MSIAM represents,manages and conducts the business of MKIF and mustreport to the MKIF Board the status of businessconduct and asset management at least once everyquarter.
The directors are appointed by the shareholders at ageneral meeting held in accordance with MKIFs AOI.Pursuant to the Korean Commercial Code and MKIFsAOI, the maximum length of a directors term of office isthree years, after which the director can stand forreappointment.
However, under the FSCMA promulgated in 2008 theterm of corporate director was changed to thedissolution of MKIF from three years.
SHAREHOLDERS
MKIF
DISTRIBUTIONS/ DIVIDENDSINVESTMENTS
Private Participation inInfrastructure Act
(PPI Act)
Financial Investment Service and Capital Market Act (FSCMA)
REGULATORY FRAMEWORK
MSIAM(Asset manager)
Administrator
Custodian
Sales agents
2009 ANNUAL REPORT 27
Board meetings are held at least once every quarter.Directors are provided with board papers in advance ofeach meeting to enable informed discussion of agendaitems.
The supervisory directors may request the corporatedirector or any of MKIFs service providers to report tothe Board the status of MKIF business or assetswhenever the supervisory directors deem necessary.
The Board has the right to decide the following matters:
- Execution and/or termination of the ManagementAgreement, Custodian Agreement, Sales AgencyAgreements an Administration Agreement;
- Convening general meetings of shareholders; - Issuance of new shares; - Payment of expenses or fees (or commissions)
payable to service providers in connection with themanagement, custody or distribution of MKIF assets,the administration of MKIF or other services;
- Matters relating to the allocation of distributionseither in the form of cash or shares; and
- Any matters which require the resolution of the MKIFBoard under the MKIF AOI, FSCMA, or otherrelevant legislation and regulations.
MSIAM, as Manager, is a corporate director. Thecurrent supervisory directors of MKIF are as follows:
Dae Yun Cho Reappointed as MKIF Supervisory Director in March2007 (Initially appointed in December 2002)
- Attorney-at-law, Senior Partner of Kim & Chang- National Candidate of Korea for the World Trade
Organisation (WTO) Panel and for the WTOsSubsidy and Countervailing Duties Committee
- President of the International Association of KoreanLawyers
- Arbitrator of the Korean Commercial ArbitrationBoard
- Former President of the Korea International TradeLaw Association
- Former consultant for various Korean Ministries,including the Ministry of Strategy and Finance andthe Ministry of Knowledge Economy
Kyung Soon SongReappointed as MKIF Supervisory Director in March2008 (Initially appointed in March 2005)
- Founding Representative Director of Korea ExpertConsulting Group (KECG)
- Steering Committee Member of Korea InvestmentCorporation (Chairman of Investment Sub-committee)
- Member of International Development CooperationCommittee of the Republic of Korea
- Former senior staff member of World Bank- Former chief operating officer of Nomura Project
Finance International Limited- Visiting professor at the Graduate School of
International Studies of Seoul National University(2003-2009)
Tae Hee YoonReappointed as MKIF Supervisory Director in March2008 (Initially appointed in September 2004)
- Chairman, Lutronic Corporation Inc, Korea- Chairman, Korea Economic Intelligence, NY, NY- Chairman, EnerTech International, Seoul - Senior Advisor, IFC of the World Bank, DC - Vice Chairman, Hyundai Group, Hyundai Investment
Network. Seoul - Former president, Seoul National University of
Foreign Studies, Seoul- Former Vice-Chairman, Financial Advisory Services,
PricewaterhouseCoopers- Former Chairman of Arirang International TV- Founding chairman of Korea Economic Intelligence,
New York Wall Street
MKIFs Approach to CorporateGovernance
The MKIF Board is committed to achieving sustainablefinancial performance for the benefit of MKIF securityholders, while meeting the expectations of allstakeholders for responsible corporate governance.Accordingly, the Board has established clear corporategovernance arrangements for MKIF, includingdelegation of responsibilities to MSIAM and otherservice providers. The Board monitors thesedelegations, and periodically reviews the effectiveness
28 MACQUARIE KOREA INFRASTRUCTURE FUND
of arrangements to ensure they are in the best interestof MKIF and its security holders.
MKIF relies extensively on its corporate director andasset manager, MSIAM, for effective day-to-day controlof MKIFs operations. This reliance is established by theManagement Agreement, MKIFs AOI, and applicableKorean laws and regulations, which together giveMSIAM full authority with respect to the management ofMKIF assets. Consequently, MSIAM is an importantcomponent of MKIFs corporate governanceframework.
As an affiliate of the Macquarie Group Ltd.(Macquarie),MSIAM has, to the extent possible and relevant,adopted the corporate governance framework thatMacquarie applies to its funds management activities.
The requirements of the framework and its relatedpolicies are broadly consistent with the Australian StockExchanges Corporate Governance Principles and BestPractice Recommendations (the Standards). TheStandards are designed to maximise corporateperformance and accountability in the interests ofshareholders and the broader economy, and addressmatters such as board structure, promotion of ethicaland responsible decision-making, timely and balanceddisclosure, recognition and management of risk, andrecognition of the interests of stakeholders.
The MKIF and MSIAM Boards have adopted fundmanagement policies that are consistent with theprinciples contained in the Macquarie fundsmanagement framework, although they have beenamended to take account of Korean legal andregulatory requirements. The policies address thefollowing key areas:
- Risk management- External communications- Staff trading- Conflict of interest management- Auditor independence- Employee conduct- Employee health and safety- Environmental and social responsibility management- Related party transactions
MSIAM BOARD OF DIRECTORS
The MSIAM Board of Directors (MSIAM Board) isresponsible for establishing an effective corporategovernance framework and MSIAM managementoversight, with a view to ensuring that MSIAM performsits duties with due care and diligence in accordancewith the management agreement. In particular, theBoard is responsible for:
- Considering and approving the submission ofinvestment or divestment recommendations toMKIF;
- Setting objectives, goals and strategic direction formanagement, with a view to maximizing shareholderwealth;
- The oversight of control and accountability systems; - Ensuring MSIAM is performing its functions and
providing services to MKIF as provided for under theManagement Agreement;
- Review and ratification of systems for riskmanagement framework and internal compliancestandards;
- Approving and monitoring financial and otherreporting; and
- Setting the highest business standards and codesfor ethical behavior.
Board meetings are held at least quarterly or morefrequently as required. Directors are provided withboard papers in advance of each meeting to enableinformed consideration of agenda items.
MSIAMs current board of directors comprises threerepresentatives nominated by the Macquarie Groupand two nominated by the Shinhan Financial Group.
Chul Hum Paik Reappointed as MSIAM Representative Director inDecember 2009 (Initially appointed in December 2006)
- Representative Director of MSIAM - Former Head of the Financial Products division of
Shinhan Macquarie Financial Advisory from 2001 to2006
- Lead financial adviser to MKIF on its successful IPOand listing in March 2006
- Joined Shinhan Bank in 1993, with responsibilities forinternational banking and investment banking division
2009 ANNUAL REPORT 29
Nick van Gelder Reappointed as MSIAM Director in December 2008(Initially appointed in December 2002)
- Head of Macquarie Capital Funds in Asia- Founding Representative Director of MSIAM from
2002 to 2006- Joined Macquarie Group in 1997 with responsibilities
for infrastructure and real estate investment- Worked over 10 years in financial advisory and
investment management prior to joining MacquarieGroup
Jason PakReappointed as MSIAM Director in November 2008(Initially appointed in June 2008)
- Chief Operating Officer of Macquarie ShinhanInfrastructure Asset Management Co., Ltd.
- Joined Macquarie Group in 2002 and spent 4 yearson the equity capital market and M&A advisory sidewith Macquarie Securities
- Worked over 5 years in the Corporate Financedivision of KPMG, in Seoul and London on the M&Aadvisory side
Young Sub Hwang Appointed as MSIAM Director in March 2009
- Vice President at Shinhan Capital- Joined Shinhan Capital in 1991 and worked in the
investment management division- Became the Head of Investment Banking Division at
Shinhan Capital in 2006
Chang Soo Oh Reappointed as MSIAM Director in November 2008(Initially appointed in November 2007)
- Head of Project Financing Team in InvestmentBanking Group of Shinhan Bank
- Joined Shinhan Bank in 1981 with responsibilities forvarious transactions and investment banking division
SHAREHOLDER INFORMATION ANDDISCLOSURE
It is MKIFs policy to provide timely, open and accurateinformation to shareholders. Shareholders will beinformed to the release of MKIFs annual report, auditreport and financial statements and other regularreports. These reports will keep shareholders informedof MKIFs performance.
FSCMA requires MSIAM to upload a quarterly assetmanagement report in the MKIF website, and an annualand quarterly business report to the Financial ServiceCommission (FSC) and the Korea Financial InvestmentAssociation (KOFIA). The FSC and KOFIA areresponsible for disclosure of the reports to investorsunder the FSCMA.
MKIF is required to disclose information to investmentmarkets in accordance with the regulations of the KoreaExchange and the London Stock Exchange.
COMPLIANCE
Under the FSCMA, MSIAM, as MKIFs asset manager,is required to establish MSIAM Board-approved internalcontrol standards. Internal control standards are basicprocedures and standards to be followed by MSIAMsofficers and employees when they perform their dutiesin order to observe relevant laws and regulations,manage the companys assets effectively, and protectits investors.
MSIAM appointed a compliance officer who isresponsible for reviewing and monitoring the efficiencyof compliance systems on an ongoing basis so thatappropriate compliance procedures, staff educationand board reporting arrangements are in place toenable observance of the internal control standards.
Environmental and social responsibilities
30 MACQUARIE KOREA INFRASTRUCTURE FUND
MKIFs environmental and social responsibilities are managed throughout theinvestment process through our asset selection, ongoing asset management andshareholder reporting
MKIF recognises that its infrastructure investmentsinvolve both environmental and social responsibilities as aresult of the essential services provided by such assets.
MKIFs environmental and social responsibility arisesfrom the impact (both positive and negative) on naturalresources, the community, customers, employees andinvestors by the operations of the fund and itsinvestments.
MKIFs environmental and social responsibilities aremanaged throughout the investment process as follows:
- Asset selection - environmental and socialresponsibilities are reviewed as part of theacquisition due diligence process. Where they exist,regulatory obligations are viewed as minimumstandards for environmental and social responsibilitymanagement post-acquisition.
- Ongoing asset management - MKIFs ability tocontrol or influence the ongoing environmental andsocial responsibility management at each assetdiffers based on its level of investment and theregulatory framework that governs those issues.Importantly, the regulatory framework is notcontrolled by MKIF or its assets.
In general, it is MKIFs policy to ensure compliance byits assets within the regulatory framework and theminimum standards under which an asset operates.
Through participation on the Boards of concessioncompanies, MKIF representatives actively participate inthe consideration of environmental issues. Each
concession company provides regular reports to itsBoard on environmental matters, and this enablescompliance with environmental requirements to bemonitored and environmental and social responsibilityissues to be identified and resolved on a timely basis.
KEY ENVIRONMENTAL AND SOCIALRESPONSIBILITY FACTORS
Following a review of the specific regulatoryrequirements and concession agreements related toeach asset, MKIF has identified its key environmentaland social responsibility factors as:
- Air quality- Noise and other pollution-Waste management- Landscaping- Flora and fauna management- Occupational health and safety- Recruitment and business contracting compliance- Community relations
ENVIRONMENTAL AND SOCIALRESPONSIBILITY-RELATEDREGULATORY REQUIREMENTS
MKIF is not aware of any significant breaches ofrelevant environmental and social responsibility-relatedregulatory standards by its assets during the yearended 31 December 2009.
Non-Consolidated Financial Statements
December 31, 2009 and 2008
Report of Independent Auditors
Non-consolidated Statements of Financial Position
Non-consolidated Statements of Income
Non-consolidated Statements of Changes in Shareholders Equity
Non-consolidated Statements of Cash Flows
Notes to Non-consolidated Financial Statements
CONTENTS32
33
34
35
36
37
MACQUARIE KOREA INFRASTRUCTURE FUND
32 MACQUARIE KOREA INFRASTRUCTURE FUND
Samil PricewaterhouseCoopersLS Yong San Tower, 191, Hangangno 2-go, Yongsan-gu, Seoul 140-702, KOREA (Yongsan P.O. Box 266, 140-600) www.samil.com
Samil PricewaterhouseCoopers is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). PricewaterhouseCoopers and PwC referto the network of member firms of PwCIL. Each member firm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
To the Shareholders and Board of Directors of MACQUARIE KOREA INFRASTRUCTURE FUND
Report of Independent Auditors
We have audited the accompanying statements of financial position of MACQUARIE KOREA INFRASTRUCTUREFUND (the Company) as of December 31, 2009 and 2008, and the related statements of income, changes inshareholders' equity and cash flows for the years then ended, expressed in Korean won. These financial statementsare the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, present fairly, in all material respects, the financial position ofMACQUARIE KOREA INFRASTRUCTURE FUND as of December 31, 2009 and 2008, and the results of itsoperations, the changes in its shareholders' equity and its cash flows for the years then ended in conformity withaccounting principles generally accepted in the Republic of Korea.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the readers as described inNote 2(b) to the accompanying financial statements, do not form part of the non-consolidated financial statementsand are unaudited.
Accounting principles and auditing standards and their application in practice vary among countries. Theaccompanying financial statements are not intended to present the financial position, results of operations, changes inshareholders' equity and cash flows in conformity with accounting principles and practices generally accepted incountries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in theRepublic of Korea to audit such financial statements may differ from those generally accepted and applied in othercountries. Accordingly, this report and the accompanying financial statements are for use by those who are informedabout Korean accounting principles or auditing standards and their application in practice.
Seoul, KoreaFebruary 1, 2010
This report is effective as of February 1, 2010, the audit report date. Certain subsequent events or circumstances, which may occur between the audit reportdate and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers ofthe audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent eventsor circumstances, if any.
2009 ANNUAL REPORT 33
The accompanying notes are an integral part of these financial statements.
Non-consolidated Statements of Financial Position
MACQUARIE KOREA INFRASTRUCTURE FUNDDecember 31, 2009 and 2008(In thousands of Korean won and U.S. dollars, except per share data)
Invested assets:Cash and deposits (notes 3 and 8)Loans receivable (notes 4, 7 and 20)Equity securities (notes 6 and 9)
Total invested assets
Other assets: Interest receivable (note 7)Other receivablesDeferred costs, net (note 5)
Total other assets
Total assets
239,693,5231,112,569,724
612,520,450
1,964,783,697
168,342,2523,178,181
17,991,462
189,511,895
2,154,295,592
182,411,9031,144,655,688
602,553,300
1,929,620,891
160,031,0792,427,4557,752,226
170,210,760
2,099,831,651
$ 205,287,361952,868,897524,597,850
1,682,754,108
144,178,0162,721,978
15,408,926
162,308,920
$ 1,845,063,028
2009 2008 2009Assets
Won (thousands) U.S. dollars(note 2(b))
Liabilities:Accounts payableManagement fee payable (note 8)Other liabilities (notes 8 and 10)Long-term debts (notes 8 and 11)
Total liabilities
Shareholders equity:Share capital - no par value
Authorized - 4,000,000,000 shares; Issuedand outstanding: 331,459,341 shares in2009 and 323,490,204 shares in 2008
Retained earningsNet asset value per share in Korean won and U.S. dollars: 5,100($4.37) in 2009 and 5,381($4.28) in 2008 (note 16)
Total shareholders equity
Total liabilities and shareholders equity
7,3365,814,322
77,985,267380,087,014
463,893,939
1,670,985,755
19,415,898
1,690,401,653
2,154,295,592
9,605,6355,974,5912,900,647
340,523,026
359,003,899
1,631,530,557
109,297,195
1,740,827,752
2,099,831,651
$ 6,2834,979,721
66,791,082325,528,446
397,305,532
1,431,128,601
16,628,895
1,447,757,496
$ 1,845,063,028
Liabilities and Shareholders Equity
34 MACQUARIE KOREA INFRASTRUCTURE FUND
Non-consolidated Statements of Income
MACQUARIE KOREA INFRASTRUCTURE FUNDFor the years ended December 31, 2009 and 2008(In thousands of Korean won and U.S. dollars, except earnings per share)
Revenue:Interest income (notes 4, 7 and 8)Arrangement feesDividend income (note 6)Gain (loss) on sale of investment, net(notes 4 and 6)Loss on valuation of debt securities Other income (expense)
Expenses:Management fees (note 8)Custodian fees (note 8)Administrator fees (note 8)Interest expense (note 8)Other expense (notes 8 and 13)
Net income
Earnings per share in Korean won and U.S. dollars (note 17)
157,818,013143,640
-(3,574,935)
-(409,038)
153,977,680
23,381,797337,509295,320
22,960,9716,779,020
53,754,617
100,223,063
302
154,387,6072,895,000
482,00079,399,902
(2,921,659)821,149
235,063,999
27,835,500387,173301,863
16,235,4946,604,027
51,364,057
183,699,942
554
$ 135,164,451123,022
-(3,061,781)
-(350,324)
131,875,368
20,025,520289,062252,929
19,665,1005,805,944
46,038,555
$ 85,836,813
$ 0.26
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
The accompanying notes are an integral part of these financial statements.
2009 ANNUAL REPORT 35
Non-consolidated Statements of Changes in Shareholders Equity
MACQUARIE KOREA INFRASTRUCTURE FUNDFor the years ended December 31, 2009 and 2008(In thousands of Korean won and U.S. dollars, except per share data)
Balance at January 1, 2008Net incomeCash distribution (note 12)(Net asset value per share inKorean won and US dollars: 5,381 ($4.28) (note 16)
Balance at December 31, 2008
Stock dividends (note 12)Net incomeCash distribution (note 12)(Net asset value per share inKorean won and US dollars:5,100 ($4.37) (note 16)
Balance at December 31, 2009
323,490,204--
323,490,204
7,969,137--
331,459,341
1,652,985,097-
(21,454,540)
1,631,530,557
39,455,198--
1,670,985,755
49,713,305183,699,942
(124,116,052)
109,297,195
(39,455,198)100,223,063
(150,649,162)
19,415,898
1,702,698,402183,699,942
(145,570,592)
1,740,827,752
-100,223,063
(150,649,162)
1,690,401,653
$1,458,289,142157,331,228
(124,675,053)
1,490,945,317
-85,836,813
(129,024,634)
$1,447,757,496
Number ofshares Share capital
Retainedearnings Total Total
Won (thousands) U.S. dollars(note 2(b))
The accompanying notes are an integral part of these financial statements.
36 MACQUARIE KOREA INFRASTRUCTURE FUND
Non-consolidated Statements of Cash Flows
MACQUARIE KOREA INFRASTRUCTURE FUNDFor the years ended December 31, 2009 and 2008(In thousands of Korean won and U.S. dollars)
Cash flows from operating activities:Cash inflows from operating activities:
Interest incomeDividend incomeArrangement feesCollection of loans receivableOther incomeSale of invested assetsAdvance receipt
Cash outflows from operating activities:Purchases of equity securitiesIssuances of loans receivablePayment of deferred costsManagement feesCustodian feesAdministrator feesInterest expenseOther expenses
Net cash provided by operating activities
Cash flows from financing activities:Repayment of long-term debtsProceeds from long-term debtsDistribution
Net cash provided by (used in) financing activities
Net increase in cash and deposits
Cash and deposits at beginning of the year
Cash and deposits at end of the year
115,764,888 -
143,640 5,396,250
302,840 183,051,00072,764,508
377,423,126
(38,714,910)(107,856,357)(10,239,237)(23,542,066)
(339,895)(297,408)(783,812)
(4,721,201)
(186,494,886)
190,928,240
(120,000,000) 137,000,000
(150,646,620)
(133,646,620)
57,281,620
182,411,903
239,693,523
101,540,741482,000
2,895,000-
890,018280,318,848
-
386,126,607
(118,660,750)(195,824,340)
(2,462,641)(29,999,731)
(428,102)(300,351)(765,617)
(7,231,972)
(355,673,504)
30,453,103
(100,000,000)314,000,000
(145,570,592)
68,429,408
98,882,511
83,529,392
182,411,903
$ 99,147,729 -
123,0224,621,660
259,368156,775,437 62,319,722
323,246,938
(33,157,682)(92,374,406)(8,769,473)
(20,162,783)(291,106)(254,717)(671,302)
(4,043,509)
(159,724,978)
163,521,960
(102,774,923)117,334,704
(129,022,457)
(114,462,676)
49,059,284
156,228,077
$ 205,287,361
2009 2008 2009Assets
Won (thousands) U.S. dollars(note 2(b))
The accompanying notes are an integral part of these financial statements.
2009 ANNUAL REPORT 37
Notes to Non-consolidated Financial Statements
MACQUARIE KOREA INFRASTRUCTURE FUNDDecember 31, 2009 and 2008
2. Summary of Significant Accounting Policies and Basis of Presenting Financial Statements
(a) Basis of Presenting Financial Statements
The Company maintains its accounting records in Korean won and prepares financial statements in conformity withthe FSCMA, the Statement of Korea Accounting Standards (SKAS) No. 104, Collective investment Vehicle andaccounting principles generally accepted in the Republic of Korea (Korean GAAP).
Certain accounting principles applied by the Company that conform with financial accounting standards andaccounting principles in the Republic of Korea may not conform with generally accepted accounting principles inother countries. Accordingly, non-consolidated financial statements are intended for use only by those who areinformed about Korean accounting principles and practices.
The accompanying non-consolidated financial statements include only the accounts of the Company, and do notconsolidate the accounts of any of the Companys subsidiaries.
1. Organization and Description of Business
MACQUARIE KOREA INFRASTRUCTURE FUND (the Company) was incorporated on December 12, 2002, underthe Securities Investment Company Act (the SICA) and the Private Participation in Infrastructure Act (the PPIA).The Company is an investment company that operates by investing in entities that have entered into long-termconcession agreements with central, provincial and city governments in Korea implemented under the framework ofthe PPIA. During 2004 the Korean Government enacted (and subsequently amended) the Indirect Investment AssetManagement Business Act (IIAMBA), replacing the SICA. During 2009 the Korean Government enacted theFinancial Investment Services and Capital Markets Act (the FSCMA), replacing the IIAMBA. The Company, whichwas classified as an investment company for the IIAMBA purposes, was registered as the investment company underthe FSCMA on April 30, 2009 and amended its Articles & Incorporation on June 15, 2009.
Under the FSCMA, the Company shall not have any employees. Instead, the Company is required under FSCMA toappoint a manager, custodian, administrator and sales agents. As described in note 8, Macquarie ShinhanInfrastructure Asset Management Co., Ltd. (the Manager) is the Companys asset manager. The Manager is a jointventure between entities in the Macquarie Group and Shinhan Financial Group. On November 11, 2005, the Managerwas licensed as an infrastructure fund asset management company under the IIAMBA and on February 4, 2009, theManager was re-licensed as an infrastructure fund asset management company under the FSCMA.
The Company listed its Depository Receipts (DR) on the London Stock Exchange Professional Securities Market onMarch 14, 2006, and its common shares on the Korea Exchange on March 15, 2006. Through its initial public offering(IPO), the Company issued 71,428,572 shares and received proceeds of 500,199 million. In addition, theCompany issued 11,984,713 shares and raised new capital of 82,291 million through the exercise of the over-allotment option in 2006. The Company deducted the share issuance costs related to the IPO, of 18,856 million and267 million, from share capital in 2006 and 2007, respectively. On February 26, 2009, the Company additionallyissued 7,969,137 shares through stock dividends.
38 MACQUARIE KOREA INFRASTRUCTURE FUND
(b) Basis of Translating Financial Statements
The Company operates primarily in Korean won and its accounting records are maintained in Korean won. TheU.S. dollars amounts as of and for the year ended December 31, 2009, provided herein, represent supplementaryinformation, solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at US$1:1,167.6. Such presentation is not in accordance with accounting principles generally accepted in the Republic ofKorea, and should not be construed as a representation that the won amounts shown could be readily converted,realized or settled in U.S. dollars at this or any other rate.
(c) Revenue Recognition
Revenue is recognized when the Companys revenue-earning activities have been substantially completed, theamount of revenue can be measured reliably, and it is probable that the economic benefits associated with thetransaction will flow to the Company. Interest income on loans is recognized on an accrual basis. In principle, theCompany recognizes interest income using the effective interest rate method over the term of the loan.
(d) Cash and Deposits
The Company considers cash and deposits to include funds deposited in money market deposit accounts,negotiable certificates of deposit and time deposits.
(e) Loans receivable
The acquisition costs of loans receivable are initially carried at cost. The costs related to loan acquisitions aredeferred and amortized over the term of the respective loan. Under the effective interest rate method, the loans arerecorded at amortized costs, including allowance for doubtful loans.
The Company assesses the potential impairment of loans receivable when there is evidence that events orchanges in circumstances have made the recovery of an assets carrying value unlikely. The carrying value of theasset is reduced to its estimated realizable value by recording an impairment loss charged to current operationsand presenting it as a reduction from the said carrying value.
(f) Investment Securities
Under the SKAS No.8, Investment Securities, investment securities are initially recognized and carried at cost,including incidental expenses.
The Company as the investment company also accounts for investment securities under the provision of SKAS No.104, Collective Investment Vehicle.
Investment securities are subsequently measured at fair value and changes in the fair values of the securities arerecognized in the current operations. Under SKAS No. 104, the fair value is determined by valuation methodologiesstipulated in FSCMA.
Under the provision of FSCMA and its presidential decree, when a reliable market price is not readily determinableat the assessment date, investment securities are measured at fair value which is the price determined by the
2. Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued
Notes to Non-consolidated Financial Statements, Continued
2009 ANNUAL REPORT 39
Collective Investment Property Appraisal Committee (Appraisal Committee) of Macquarie Shinhan InfrastructureAsset Management Co., Ltd. In this case, the Appraisal Committee should determine the price of unlisted and non-marketable securities considering, amongst other things, the acquisition cost, transaction price and third partyvaluation. As of December 31, 2009, the Appraisal Committee has chosen to adopt acquisition cost as itsassessment of fair value for the unlisted equity securities.
Investment securities shall be assessed at each statement of financial position date to determine whether there isany objective evidence of impairment. When such evidence exists, and unless there is clear counter evidence thatrecognition of impairment is unnecessary, the entity shall estimate the recoverable amount of the impaired securityand recognize any impairment loss in current operations.
(g) Share Issuance Costs
The Companys shares have no par value, and share issuance costs are recorded as a reduction fromshareholders equity.
(h) Distributions Payable
Distributions are declared and recorded when approved by the Companys board of directors as defined under theCompanys Articles of Incorporation.
( i ) Provisions
When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting froma past event, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in thefinancial statements. However, when such outflow is dependent upon a future event, is not certain to occur, orcannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financialstatements.
( j ) Net Asset Value Per Share
Net asset value per share is calculated as the carrying value of net assets of the Company divided by theoutstanding numbers of shares.
(k) Earnings Per Share
Earnings per share are calculated by dividing net income by the weighted-average numbers of shares outstandingduring each period.
( l ) Income Taxes
As described in note 1, the Company is an investment company under the FSCMA, which is defined as a collectiveinvestment vehicle established in the form of a corporation under the Korean Commercial Code to distribute to itsshareholders the profits made by managing investments. Accordingly, for Korean corporate income tax purposes,the Company, as an investment company under the FSCMA, is entitled to deduct from its taxable income (up to anamount equal to its taxable income) for any fiscal year the amount of distributions the Company declares in the
2. Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued
40 MACQUARIE KOREA INFRASTRUCTURE FUND
same year as long as such amount is equal to 90% or more of the Companys distributable income for such year.Distributable income is defined as non-consolidated net income after deduction of income taxes as set forth in theCompanys non-consolidated financial statements prepared under Korean GAAP, further adjusted to includeretained earnings or deficit and any reserves pursuant to applicable laws and regulations. If the Company does notdeclare distributions equal to 90% or more of the Companys distributable income in a particular fiscal year, theCompany will be liable for the Korean corporate income tax for the entire amount of its taxable income.
(m) Use of Estimates
The preparation of non-consolidated financial statements in accordance with Korean GAAP requires managementto make estimates and assumptions that affect the amounts reported in the non-consolidated financial statementsand related notes. Therefore, actual results could differ from those estimates.
(n) Approval of financial statements
The December 31, 2009, financial statements of the Company were approved by the board of directors onFebruary 1, 2010.
3. Cash and Deposits
Cash and deposits as of December 31, 2009 and 2008, are as follows:
(*1) As of December 31, 2009, the interest rate of MMDA is 1.80%.(*2) As of December 31, 2009, the interest rates of TDs are 2.77%~3.50%, and the maturities of TDs are less than 1 year.
Money Market Deposit Accounts (MMDA) (*1): SC Korea First Bank
Time Deposits (TD) (*2):Kookmin BankWoori BankShinhan Bank
Negotiable Certificate of Deposits (NCD)Kookmin BankNACFWoori Bank
17,693,523
100,000,000100,000,00022,000,000
222,000,000
---
-
239,693,523
21,881,753
50,000,000 -
10,000,000
60,000,000
20,185,440 30,088,822 50,255,888
100,530,150
182,411,903
$ 15,153,754
85,645,769 85,645,76918,842,069
190,133,607
---
-
$ 205,287,361
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
Notes to Non-consolidated Financial Statements, Continued
2. Summary of Significant Accounting Policies and Basis of Presenting Financial Statements, Continued
2009 ANNUAL REPORT 41
(*1) The interest rate on this loan was 13% per annum until March 9, 2008, and was increased to 15% per annum thereafter. InJanuary 2008, the Company sold the loan and the related interest receivable to BYT Securitization Specialty Co., Ltd. (BYTSPC) for 172,000 million and recognized gain of 24,454 million on investment sales. The Company acquired both 0.8%shares of Baekyang Tunnel Ltd. and additional loan of 992 million for 2,100 million.
(*2) On March 26, 2009, the Company sold the senior loan of Incheon Bridge Co., Ltd. to Industrial Bank of Korea and KookminBank for 134,499 million.
(*3) In accordance with the loan agreement, 50% of the accrued interest (10,012 million) during the construction period was addedto the principal. The Company has accrued interest using an effective interest rate of 9.35%.
4. Loans receivable
Loans receivable as of December 31, 2009 and 2008, are as follows:
Senior loans receivable:Kwangju Beltway Investment Co., Ltd.Kwangju Ring Road Co., Ltd. Soojungsan Investment Co., Ltd. Baekyang Tunnel Ltd. (*1)
Incheon Bridge Co., Ltd. (*2)
Subordinated loans receivable:Kwangju Beltway Investment Co., Ltd. MCB Co., Ltd. (*3)
New Airport Hiway Co., Ltd.Soojungsan Investment Co., Ltd.Cheonan Nonsan Expressway Co., Ltd. (*4)
Daegu East Circulation Road Co., Ltd. Incheon Bridge Co., Ltd. Seoul-Chuncheon Highway Co.,Ltd (*5)
Gyungsu Highway Co., Ltd (*6)
Kyunggi Highway Co., Ltd (*7)
Busan New Container Terminal Co., Ltd. (*8)
Seoul Metro Line 9 Co., Ltd.Woomyunsan Infraway Co., Ltd. (*9)
Working capital loans receivable:Kwangju Beltway Investment Co., Ltd.
107.858.5
13~15 8
2020
13.920
6~2017
11.4911~11.5913 ~ 159 ~ 1110~12
1520
15
2018~20242010~20192009~2018
20242010~2024
2024~20262024~20292015~2017
20172024~20292022~20242020~20262026~20312029~20342025~20292028~20322033~20352024~2026
2027
Annual InterestRate(%)
Repayment Period
142,000,00073,354,84664,755,0001,660,271
-
31,950,00061,266,31951,670,40019,260,587
182,250,00032,045,00087,429,56087,450,00077,000,00068,455,00085,726,00033,460,0009,576,000
3,260,741
1,112,569,724
142,000,000 73,354,846 70,151,2501,707,342
113,063,000
31,950,000 61,266,319 51,670,400 19,260,587
182,250,00032,045,00063,789,20387,450,00072,400,00045,555,00060,022,000 33,460,000
-
3,260,741
1,144,655,688
$ 121,616,99262,825,32255,459,9181,421,952
-
27,363,82352,472,01044,253,511 16,495,878
156,089,41527,445,187 74,879,719 74,897,22565,947,24258,628,811 73,420,69228,657,074 8,201,439
2,792,687
$ 952,868,897
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
42 MACQUARIE KOREA INFRASTRUCTURE FUND
(*4) Interest rates per annum are as follows: 6% from 2005 to 2007, 8% in 2008, 16% from 2009 to 2012 and 20% from 2013 tomaturity in 2029, and an effective interest rate of 11.58% is used to recognize interest income. Due to financial covenantsrestricting payment of interest on subordinated loans, Cheonan Nonsan Expressway (CNEC) have the limitation to pay interestson the subordinated loan. In May 2009, the Company entered a debt securitization agreement with NH Investment andSecurities Co., Ltd (NHISC) to securitize the accumulated interest receivable from CNEC. Under the agreement, NHISC agreedto take over the debt securities amounting 157,200 million through seven transactions. The Company paid an underwriting feeof 1.5% (2,358 million) of the total underwriting amount to NHISC. In May 2009, the Company sold the debt securities of33,789 million for 30,214 million as the first transaction under the agreement.
(*5) The interest rate during the construction period is 11% per annum and increases to 11.59% per annum thereafter. The Companyhas accrued interest income using an effective interest rate of 11.9%.
(*6) The interest rate during the construction period and for three years following commencement of operations is 13% per annumand increases to 15% per annum thereafter.
(*7) The interest rate during the construction period is 9% per annum and increases to 11% per annum thereafter. On January 25,2010, the Company sold the loan of Seosuwon-Osan-Pyungtaek Expressway (SOPE) (Note 20).
(*8) The interest rate during the construction period is 10% per annum and increases to 12% per annum thereafter.
(*9) In January 2009, the Company acquired the subordinated loan for 9,576 million, and the interest rate is 20% per annum.
4. Loans receivable, Continued
Deferred costs as of December 31, 2009 and 2008, are as follows:
(*1) The fees regarding the securitization and credit facility are included (Notes 4 and 11).
5. Deferred Costs
Notes to Non-consolidated Financial Statements, Continued
Costs deferred on investments prior to acquisitionLoans receivable costs, netOthers (*1)
137,5007,089,564
10,764,398
17,991,462
137,500 7,585,962
28,764
7,752,226
$ 117,7636,071,912 9,219,251
$ 15,408,926
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
2009 ANNUAL REPORT 43
(a) Equity securities as of December 31, 2009 and 2008, are as follows:
6. Investments
(*1) Kwangju Beltway Investment Co., Ltd. (KBICL) operates the Gwangju Second Beltway, Section 1 and collects toll revenuesgenerated by the beltway under the concession agreement with the Gwangju City government.
(*2) Kwangju Ring Road Co., Ltd. (KRRCL) operates the Gwangju Second Beltway, Section 3-1 and collects toll revenuesgenerated by the beltway under the concession agreement with the Gwangju City government.
(*3) MCB Co., Ltd. (MCB) holds the concession right to operate Machang Bridge under a concession agreement with theGyeongsangnamdo provincial government and commenced its operation on July 15, 2008. On July 31, 2008, the Companyadditionally acquired 51% of shares in MCB for 20,464 million from Bouygues and Hyundai Construction Co.,Ltd.
(*4) New Airport Hiway Co., Ltd. (NAHC) operates the Incheon International Airport Expressway and collects toll revenuesgenerated by the Highway under the concession agreement with the Ministry of Land, Transport and Maritime Affairs (MLTM).In 2008, NAHC paid dividends amounting to 2,000 million and the Company received dividend income of 482 million fromNAHC.
(*5) Baekyang Tunnel Ltd. (BYTL) operates and manages Baekyang Tunnel under its concession agreement with the Busan Citygovernment.
Kwangju Beltway Investment Co., Ltd. (*1)
Kwangju Ring Road Co., Ltd. (*2)
MCB Co., Ltd. (*3, 17)
New Airport Hiway Co., Ltd. (*4)
Baekyang Tunnel Ltd. (*5)
Soojungsan Investment Co., Ltd. (*6)
Cheonan Nonsan Expressway Co., Ltd. (*7, 17)
Woomyunsan Infraway Co., Ltd. (*8, 17)
Private Infrastructure Investment Korea (*9)
Korea Road Infrastructure Investment Co., Ltd. (*10)
Seoul-Chuncheon Expressway Co., Ltd. (*11, 17)
Busan New Container Terminal Co., Ltd. (*12, 17)
Gyungsu Highway Co., Ltd. (*13, 17)
Seoul Metro Line 9 Co., Ltd. (*14)
BYT Securitization Specialty Co., Ltd. (*15)
CN First Securitization Specialty Co., Ltd. (*16)
100.075.0
100.024.1
100.0100.060.036.0
100.085.015.030.035.024.50.50.5
Owner-ship (%)
13,050,000 29,494,766 48,464,342 59,880,2481,231,000
47,247,83093,815,0612,723,725
75,286,809 57,552,156 49,439,04334,825,957 58,361,765 41,147,648
5050
612,520,450
13,050,00029,494,766 48,464,34259,880,248 1,231,000
47,247,83093,815,06121,875,72557,046,80957,552,156 49,439,043 27,446,85754,861,765 41,147,648
50 -
602,553,300
$ 11,176,77325,261,02041,507,65751,284,8991,054,299
40,465,76780,348,6302,332,755
64,479,96749,290,98742,342,44929,826,95949,984,38235,241,220
4343
$ 524,597,850
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
44 MACQUARIE KOREA INFRASTRUCTURE FUND
(*6) Soojungsan Investment Co., Ltd. (SICL) operates Soojungsan Tunnel under a concession agreement with the Busan Citygovernment.
(*7) CNEC operates Cheonan-Nonsan Expressway under a concession agreement with the MLTM.
(*8) Woomyunsan Infraway Co., Ltd. (WIC) operates Woomyunsan Tunnel under a concession agreement with the Seoul City. InJanuary 2009, according to the shareholders agreement, WIC reduced its capital by purchasing 50% of outstanding shares at10,000 per share (par value 5,000 per share), decreasing the Companys shares in WIC from 3,830,400 shares to 1,915,200shares. In this regard, the Company received 19,152 million of proceeds for the capital reduction from WIC.
(*9) Private Infrastructure Investment Korea (PIIK) is a special purpose company established to acquire Incheon Bridge Co., Ltd.(IBC), the concession company with the right to operate Incheon Grand Bridge, under a concession agreement with the MLTM.As of December 31, 2009, PIIK holds 40.86% of the equity in IBC. Incheon Bridge commenced its operations on October 19,2009.
(*10) Korea Road Infrastructure Investment Co., Ltd. (KRIIC) is a special purpose company established to provide funding to DaeguEast Circulation Road Co., Ltd. (DECRC), the concession company with the right to operate and maintain the Daegu 4thBeltway East. As of December 31, 2009, KRIIC holds 100% of the shares of DECRC.
(*11) Seoul-Chuncheon Expressway Co., Ltd. (SCE) has the right to operate and manage Seoul-Chuncheon Expressway under theconcession agreement with MLTM and commenced its operations on August 12, 2009.
(*12) Busan New Container Terminal Co., Ltd. (BNCT) has been granted a concession from MLTM to construct, operate andmanage Busan New Port Phase 2-3.
(*13) Gyungsu Highway Co., Ltd. (YSE) has the right to operate and manage Yongin-Seoul Expressway under the concessionagreement with MLTM and commenced its operations on July 1, 2009. The Company has the option to increase its stakefurther to 67% depending on the toll revenues of the Yongin-Seoul Expressway over the first 2 years of operations.
(*14) Seoul Metro Line 9 Co., Ltd. (SM9) has the right to operate and manage Subway Line 9 under the concession agreement withSeoul City government and commenced its operations on July 24, 2009.
(*15) In December 2007, the Company acquired 0.5% of the shares of BYT SPC for the purchase price of 50 thousand. TheCompany also provided Shinhan Bank with its equity shares in the BYT SPC as a pledge in relation to any potential loss whichmay arise due to BYTLs default on the loan.
(*16) In April 2009, the Company acquired 0.5% of the shares of CN First Securitization Specialty Co., Ltd.
(*17) The Company provided its equity shares as collaterals for subsidiaries long-term debts (Note 9).
(b) In 2008, the Company sold the debt securities of New Daegu-Busan Expressway Co.,Ltd. for 108,319 million,recognizing 54,946 million as gain on disposal of the convertible bond.
6. Investments, Continued
Notes to Non-consolidated Financial Statements, Continued
2009 ANNUAL REPORT 45
(a) Details of significantly invested companies as of December 31, 2009, are as follows:
(*1) SKAS 104 does not require disclosure of transactions and balances with related parties. However, in order to provide relevantinformation to the shareholders, the Company classifies the subsidiaries where greater than 50% equity shares are held assignificantly invested companies, and discloses the transactions and balances with such entities.
(*2) 100% subsidiary of Korea Road Infrastructure Investment Co., Ltd.
(b) Significant transactions which occurred in the normal course of business with the significantly invested companiesas of and for the years ended December 31, 2009 and 2008, are summarized as follows:
(c) Compensation for the supervisory directors for the years ended December 31, 2009 and 2008, consists of:
7. Transactions with Significantly Invested Companies and Supervisory Directors
Kwangju Beltway Investment Co., Ltd.Kwangju Ring Road Co., Ltd.Baekyang Tunnel Ltd.Cheonan Nonsan Expressway Co., Ltd.Soojungsan Investment Co., Ltd.Private Infrastructure Investment Korea Co., Ltd.Korea Road Infrastructure Investment Co., Ltd.Daegu East Circulation Road Co., Ltd. (*2)
MCB Co., Ltd.
10075
10060
10010085
-100
Operation of toll roadOperation of toll road
Operation of tunnelOperation of toll road
Operation of tunnelInvestmentInvestment
Operation of toll roadOperation of toll road
Ownership(%) Principal BusinessSignificantly Invested Companies (*1)
Statements of income:Interest income
Statements of financial position:Loans receivableInterest receivable
90,865,271
611,802,764156,580,669
88,847,286
617,246,085 143,268,396
$ 77,822,260
523,983,183$ 134,104,718
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
Salaries 144,000 133,419 $ 123,330
2009 2008 2009
Won (thousands) U.S. dollars(note 2(b))
46 MACQUARIE KOREA INFRASTRUCTURE FUND
(a) On December 13, 2002, the Company appointed Macquarie Shinhan Infrastructure Asset Management Co., Ltd.as the Companys Manager, with the terms of the appointment stipulated in a management agreement executedbetween the Company and the Manager. The management agreement was finally amended and restated onFebruary 16, 2006 (the Management Agreement). Pursuant to the Management Agreement, the Company paidmanagement fees and performance fees to the Manager on the following basis:
(i) Post-listing Management Fees: The Manager receives a fee, paid quarterly in arrears, calculated as a proportionof the net investment value and the commitments of the Company. The net investment value of the Company isthe aggregate of the market value of the Company plus debt incurred by the Company less cash and cashequivalents (*) (Net Investment Value). Commitments represent the aggregate of amounts which the Companyhas firmly committed for future investments (other than cash and cash equivalents (*)). Each of the NetInvestment Value and Commitments are calculated as at the end of each calendar quarter.
- In relation to the Net Investment Value portion of the Post-listing Management Fees, the amount is calculated atthe rate of 1.25% per annum of the Net Investment Value where Net Investment Value plus Commitments isless than or equal to 1.5 trillion, and 1.10% per annum for that part of the Net Investment Value where NetInvestment Value plus Commitments exceeds 1.5 trillion.
- In relation to the Commitments portion of the Post-Listing Management Fee, the amount is calculated at therate of 1.15% per annum of Commitments where Commitments plus Net Investment Value is less than or equalto 1.5 trillion, and 1.05% per annum for that part of Commitments where Commitments plus Net InvestmentValue exceeds 1.5 trillion.
(*) Cash and cash equivalents include all cash and deposits held at the banks.
(ii) Post-listing Performance Fees: Post-listing Performance Fees are payable to the Manager quarterly, calculatedas 20% of the out-performance (as measured by an accumulation index for shares over the last 15 trading daysof each quarter) over an 8% per annum benchmark rate of return, after taking into account any deficit andsurplus from previous periods.
(iii) Termination of Management Agreement: Under the terms of the Management Agreement, the Company mayonly terminate the agreement upon 90 days written notice to the Manager and approval by the holders of atleast two thirds of the Companys shares. However, if the Company terminates the Management Agreement forreasons other than willful misconduct, gross negligence by the Manager or underperformance, the Company isrequired to pay to the Manager an amount equal to:
- three times the management fees paid to the Manager over the four quarters immediately precedingtermination; and
- if the Company was not listed, a listing performance fee assuming the Company had listed as at the time of
8. Related Party Transactions and Balances with the Manager and its Associates
Notes to Non-consolidated Financial Statements, Continued
2009 ANNUAL REPORT 47
termination; or
- if the Company is listed, performance fees for the 12 quarters after termination as though the Manager was stillengaged as the Manager and the Management Agreement was still operating.
Underperformance is deemed to have occurred where the share price performance and distributions of theCompany, as measured by an accumulation index, underperforms an adjusted benchmark rate of return, being thelower of 3% per annum or the annualized rate of inflation, for 14 out of 16 consecutive quarters.
(b) As of December 31, 2009, the Company has the Korean Securities Finance Corporation and KEB InvestorServices Co., Ltd. as its Custodian and Administrator, respectively. The Company also has Good Morning ShinhanSecurities Co., Ltd., Macquarie Securities Korea, Ltd., Hanwha Securities Co., Ltd., Samsung Securities Co., Ltd.,Tongyang Investment Bank Co., Ltd. and Kyobo Securities Co., Ltd. as its Sales Agents. Pursuant to the relevantservice provider agreements, the Company pays administrator fees, custodian fees and sales agent fees. Thedetails are as follows:
(i) Custodian fees: 0.02% per annum of the average balance of the net asset value of the Company. This fee is paidin arrears on a quarterly basis.
(ii) Administrator fees: 0.0175% per annum of the average balance of the net asset value of the Company. This feeis paid quarterly in arrears.
(iii) Sales agent fees: According to sales agent agreements, no fee is payable.
8. Related Party Transactions and Balances with the Manager and Associates, Continued
48 MACQUARIE KOREA INFRASTRUCTURE FUND
Significant transactions:Macquarie Shinhan Infrastructure AssetManagement Co., Ltd.
Shinhan Bank
Shinhan Macquarie Financial Advisory Co., Ltd. (SMFA)
Macquarie SecuritiesLimited
Account balances:Macquarie Shinhan Infrastructure Asset Management Co., Ltd.
Shinhan Bank
Management fee
Cash and deposits(*1)
Long-term debt (*2)
Repayment of long-term debt (*2)
Interest income (*1)
Interest expense (*2)
Upfront fee and other feesregarding the credit facility (*2)
Advisory fee
Advisory fee
Management fee payable
Cash and deposits (*1)
Long-term debt (note 11) (*2)
Other liabilities (*2)
23,381,797
22,000,00038,360,00033,600,000
765,2936,429,072
4,815,084
3,049,063
-
5,814,322
22,000,000106,424,364
647,305
27,835,500
10,000,00087,920,00028,000,000
128,9264,545,938
182,488
2,662,464
4,084,344
5,974,591
10,000,000 95,346,447
755,772
$ 20,025,520
18,842,06932,853,717 28,776,978
655,4415,506,228
4,123,916
2,611,393
-
$ 4,979,721
18,842,069 91,147,965
554,389
2009 2008 2009
Won (thousands)U.S. dollars
(note 2(b))
8. Related Party Transactions and Balances with the Manager and Associates, Continued
(c) Significant transactions and account balances which occurred with the Manager and its related parties as of andfor the years ended December 31, 2009 and 2008, are summarized as follows:
(*1) In 2009, the Company held Time Deposit (TD) amounting to 22,000 million with Shinhan Bank and also recognized interestincome from the TD.
(*2) In 2009 and 2008, the Company withdrew 38,360 million and 87,920 million, respectively, from Shinhan Bank. TheCompany has paid interest expense, an upfront fee, an agent banking fee and a commitment fee regarding this credit facility. TheCompany made an early repayment of the long-term debt in the amount of 120,000 million on August 17 and November 17,2009 of which repayment of 33,600 million was made to Shinhan Bank. As of December 31, 2009, the long-term debtamounted to 106,424 million including the capitalized interest payable to Shinhan Bank. Other liabilities consist of the interestexpense, the commitment fee accrued for the long-term debt and the remaining credit facility from Shinhan Bank.
Notes to Non-consolidated Financial Statements, Continued
2009 ANNUAL REPORT 49
Equity securities:MCB Co., Ltd.
Cheonan Nonsan Expressway Co., Ltd.
Woomyunsan Infraway Co., Ltd.
Seoul-Chuncheon Highway Co., Ltd.
Busan New Container Terminal Co.,Ltd.
Gyungsu HighwayCo.,Ltd.
Kookmin Bank and others
KoreaDevelopment Bank, CNESecuritizationSpecialty LLC and Shinhan Bank
Shinhan Bank and others
Kookmin Bank and others
Kookmin Bank and others
Korea Development Bank and others
MCB Co., Ltd.
Cheonan Nonsan Expressway Co., Ltd.
WoomyunsanInfraway Co., Ltd.
Seoul-Chuncheon Highway Co., Ltd.
Busan New Container Terminal Co.,Ltd.
Gyungsu Highway Co.,Ltd.
48,464,342
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