Korea

Water Resources
Corporation

Investor Presentation

May 2014
11

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Investment Highlights
Strong Link with Government
100% Government Ownership
Strong Financial Support
(09 536, 10 643, 11 771, 12 836, 13 909, 14 852 KRW bn)

Management Appointed Directly by the

Government

Pivotal Policy Role

Importance of water resources to the
national economy
Sole Public Entity for Many Water- Related
Businesses
Practically No Privatization Risk

Credit Rating: A1(Moodys)/A+(S&P)

Legal Framework for

Government Support
Govt to maintain a minimum 50% ownership
Basis for financial support from the govt
K-water mandated as the govt policy
implementation arm for water related
businesses

Solid Financial Profile

Sound Capital Structure
(Debt/Capitalization : 50.30%)

Strong Profitability
(EBITDA Margin : 40.8%)

Ample Liquidity

As of 2013

(Credit Line of KRW 1,190 bn, Cash of KRW 749 bn)

Contents
1

Overview of K-water

Relationship with the Government

Key Policy Role

Key Projects

Financial Profile

Company Overview, Key Milestones, Business Overview, Operations Overview

Ratings Commensurate with the Sovereign, Ownership Structure, Legal Framework for Government Support,
Integral Link with the Government, Financial Support from the Government.

Key Policy Role in Water System, Dominant Market Share

Waterworks - Water Supply, Government-led Projects

Financial Highlights

Overview of K-water

Company Overview
Establishment & Vision
established in 1967

To become a leading water

resources company in the world

Key Roles and Objectives

Key implementation arm of
the Korean Government
Develop & manage water resources
Improve the quality of water
Carry out flood control measures

Organization
Divisions : 16
Departments : 53
Employees : 4,308
13 Financial Summary
Head office

Unit: KRW tr

25.6

11.6

Total Assets Equity Capital

13.9

3.6

Total
Liablities

Revenue

Key Milestones
The only water resources company in Korea with a unique mission

Initial Stage

Take-off Stage

Growth Stage

(1967~1973)

(1974~1987)

(1988~2006)

Established as Korea Water Resources

Development Corporation (1967)
Completed construction of Soyanggang Mulitipurpose dam (1973)
Completed a study on the feasibility of 4-large
river valley project (1973)

Reorganized as Industrial Sites and Water

Resources Development Corporation (1974)
Ground-breaking Ceremony of Gumi Industrial
Complex (1977)
Completed Construction of Daecheong Multipurpose dam (1980)
Completed construction of Geumgang Regional
water works (1984)
Completed construction of Chungju Mulitipurpose dam (1985)
Completed construction of Nakdong River barrier
(1987)
Completed 3rd stage of Seoul metropolitan area
waterworks

Reorganized as Korea Water Resources

Corporation (1988)
Completed construction of Hapcheon multipurpose dam (1989)
Acquired ISO 9001 Certification (first ever by a
government-funded institution) (1996)
Signed agreement for consigned management of
Nonsan local water works (first ever consignment
of local waterworks) (2004)
Completed construction of International Water
Analysis Center(IWAC) (2004)
Completed construction of Ulsan Multi-regional
waterworks (2005)

Growth as a total water

Service company

(2007~Present)
Completed construction of Metropolitan Integrated
Operation Center (2007)
Commenced the Patrind hydropower project in
Pakistan (first ever overseas investment project)
(2009)
Completed construction of Gunwi multi-purpose
dam (2010)
Completed the worlds largest tidal power plant in
Sihwa (2011)
Opened Gyeong-in Ara Waterway (2012)
Opened The ARC (Architecture and Artistry of
River culture) (2012)
Completed construction of Buhang Multi-purpose
dam (2013)

Business Overview
K-water maintains an diversified business mix with water resources and water supply business as
predominant sources of revenue apart from private investment business
Water Resources Business

Securing water resources for

flood prevention

Revenues (KRW bn)

1,020
(28%)

Dam water supply business

Water resources construction
Hydro-electric power generation
business
4 River facilities management

727
(20%)

1,092
(30%)
349
(10%)

457
(13%)

Water Supply Business

Multi-Regional
waterworks(wholesale) business
Industrial waterworks business
Local waterworks business
Sewerage business

Others Business

Urban Environment Business

Private Investment Business

Development of industrial complexes

Development of Special Areas
Sales of lots at logistics center
(Gyeong-In Canal)

Private investment projects including

construction of dams and
waterworks

Alternative energy business

Overseas business
Aggregates business
Other consignment business

Operations Overview
Setup & Operation of Water Resources Management Systems across the Nation

HQ Water Management Center manages the operation of all multi-purpose and water supply dams
The operation of waterworks systems are managed by 7 regional Operations Centers

Current Operations under K-water

16

14

Multi-purpose
Dam

Esturay
Barrage

16

35

Water supply Multi-functional Multi-Regional

Waterworks
Weir
Dam

13

21

Industrial
Waterworks

Local
Waterworks

Construction in Progress

Multi-purpose
Dam

Flood Control
Dam

Multi-regional
Waterworks

Industrial
Waterworks

Multi-functional
Complexes

Waterfront
area

10

Relationship with the Government

11

Ratings Commensurate with the Sovereign

Local
Ratings

A+

A1

AAA

Ratings Rationale
The ratings on K-water reflect our opinion that the likelihood of the Korean government providing
timely and sufficient extraordinary support to the company in the event of financial distress is
"extremely high, based on the following elements of our criteria for GREs: "Very important" role to
the government. K-water plays an essential public policy function to develop and manage Korea's
water resources. "Integral" link with the government. The government fully owns K-water and
tightly supervises its management.

Excerpt from S&P Ratings Direct dated March 2014

12

Ownership Structure
Article 4 of the K-water Act

Contributions to its capital may only be made by local governments, the Korea
Finance Corporation and the Government (MOSF) with at least 50% of its outstanding
capital being directly owned by the Government

Ownership Status
Korea
Finance
Corporation
(8.7%)

(as of YE 2013)

Local
Governments
(0.1%)

Annual Paid - in Capital

(Accumulative)

6,898.7

Unit: KRW bn.

6,815.6
6,672.8

6,695.0

'10

'11

6,493.6

KRW
6,898.7 bn

6,274.9

6,305.4

'07

'08

Ministry of Strategy & Finance

(91.2%)

Practically no risk of
privatization given its
strategic importance

'09

'12

'13

13

Legal Framework for Government Support

The Government is allowed to provide guarantees on bonds issued by K-water (Article 13)
The Government may wholly or partially subsidize expenses necessary for K-waters business as
prescribed by the Presidential Decree (Article 37)

Dam
ACT
K-water
ACT

Water
Supply
ACT

The management of dams

constructed by MOLIT or K-water
is entrusted to K-water
(Article 15)

Local governments may entrust the operation and management of waterworks facilities to a
specialized institution appointed in accordance with the Presidential Decree (Article 23)
MOLIT may entrust the management of waterworks facilities to K-water (Article 43)

14

Integral Link with Government

K-water acts as the central agency for the management of water resources in Korea.

MOLIT
MOE
MOTIE

Supervises K-waters general business including business plan, execution plan, budgeting etc.
Approves water tariffs (together with MOSF)
Supervises K-waters general activities including management of wastewater treatment facilities
Checks water quality for dams and water supply systems
Supervises issues relating to hydropower tariffs

Responsibility

MOLIT

MOE

MAFRA

MOSPA

MOTIE

Local
Government

Multipurpose dams
Dams

Hydropower
Water supply dams
Flood control dams

Water supply Multi-regional/Industrial

(waterworks)

Local

Agricultural
water supply

Agricultural

Sewerage

Sewerage

River

National Rivers

Management

Local Rivers

Note: MOLIT refers to the Ministry of Land, Infrastructure and Transport, MOE refers to the Ministry of Environment, MOTIE refers to the Ministry of Trade , Industry and
Energy, MAFRA refers to the Ministry of Agriculture, Food and Rural Affairs, MOSPA refers to the Ministry of Security and Public Administration

15

Strong Financial Support

K-water continues to secure the Govnt capital injection and subsidies
Amount of Financial Support from the Government

Govt Funding

1000.0

Gov't Agent

Capital Injection

Subsidies

771.0

800.0

835.6

909.1

852.0

(KRW bn)

643.2
535.8

600.0

417.3
400.0

200.0

0.0

Subsidies
Capital Injection
Gov't Agent
Total

2008
7.0
30.5
379.8
417.3

2009
3.2
14.2
518.4
535.8

2010
1.0
88.6
553.6
643.2

2011
246.0
10.0
515.0
771.0

2012
291.2
120.6
423.8
835.6

2013
301.6
108.7
498.8
909.1

2014(plan)
320.0
120.0
412.0
852.0

Breakdown
Government Agency : Projects implemented by an entity on behalf of the state, funded with the national treasury
(i.e. dam construction, expansion of dam capacity)
Capital Injection : Businesses that involve production of public goods that the government invests in
(i.e. construction of waterworks, Gyeong-in Canal project)
Subsidies : National projects funded by the state (i.e. financing cost of the Four River Restoration Project)

16

Key Policy Role

17

Key Policy Role in Water System

K-water plays an important and strategic public policy role in Koreas national water system

Sources of
Water

Water Supply
Systems
(Wholesale)
Water Supply
Systems (Retail)

K-water sources
(dams, etc.)
Dam
water

Non - K-water sources

Semi-treated
water

Management/
operation
of multipurpose dams

Monopoly in wholesale
water supply

Entry into retail

water supply via
consignment business

piped water supplied

Entry into Sewerage via

consignment business

Dam/raw
water

Dam/raw water

Industrial
waterworks

Multi-regional
waterworks
Raw, treated,
semi-treated water

Local waterworks
Tap water

Customers

Sewerage

Industrials

Customers (Households)

Waste water

Waste water

Drainage

Sewerage
treatment

Discharge

18

Dominant Market Share

K-waters key policy role extends to flood control and hydro-power generation

Total Water Use

Ground Water
11%

K-water
35%

Other
Dams
21%

River Water
33%

33.3 bn /yr (Total water use)

Other Dams: Includes KHNP,
KRC
Source: Long Term Master Plan for
Water Resources (2011-2020), MOLTI

Waterworks Supply Capacity

Local
Government
53%

K-water
47%

Flood Control

Others
5%

Source: Waterworks Statistics

(2012), MOE

Hydro Power Generation

1,746 MW/yr (Total Capacity)
Others : Includes KHNP

5.2 bn /yr (Total flood control)

Others: Includes KHNP, KRC
Source: Long Term Master Plan for
Water Resources (2011-2020), MOLTI

37.7 mm /day (Total Capacity)

Others : Includes local
governments

Others
39%

K-water
61%

Source: Power Exchange System,

Korea Power Exchange (2012)

K-water
95%

National Industrial Complex

Development

Others
63%

K-water
37%

792 mm (Total designated

Area as of End of 2012)
Others : Includes LH
Source: National Industrial Statistics
(2012), MOLTI

New & Renewable Energy

Capacity
K-water
11%

Others
89%

2,338 MW/yr (Total Capacity,

exclude Hydropower)
Others : Includes KHNP
Source: Power Exchange System,
Korea Power Exchange (2012)

19

Key Projects

20

Waterworks Water Supply

K-water is the dominant player in the industry with 46.5% market share in national
water supply
Customer Breakdown (13)

No. of Customers and Water Supplied

1,714

1,743

1,825

833

3,000
Water Supplied (mm m3)

1,777

1,861

1,829

842

858

776
723

719

Number of Customers

4,000

Multiregional
Waterworks
6%

Total No. of
Customers: 1,829

2,000

2,851
2,365

2,428

2,550

2,674

2008

2009

2010

2011

2,760

2012

1,000

Industrial
Waterworks
94%

0
2013

Industrial waterworks
Multiregional waterworks
Total number of customers

21

Major Government-led Projects

No further significant capex required and more focus on collection
Reinforces strategic importance & strong relationship with the government
Four River Restoration Project

Key Objectives and Details

Mitigating water shortage, initiating flood control

measures, improving water quality / ecosystem
Construction of 2 multi-purpose dams,16 weirs
Dredge river bottom : 450 mm m3
Ecological River Construction : 858 km
Reinforcement Levee : 784 km

Gyeong-In Canal Project

Key Objectives and Details

Mitigating flood damage and traffic costs in

Incheon and Bucheon areas
Project Duration : 2009 - 2014
Main Canal : 18km length, 80m width, 6.3m depth
Terminal : Incheon: 245mm m2, Gimpo: 170mm m2

Capex Plans
(KRW trn)
~2010 2011 2012 2013 2014~ SUM
K-water
3.2
3.2
0.8
0.3
0.5
8.0
Government
4.0
3.3
0.1
7.4
Total
7.2
6.5
0.9
0.3
0.5
15.4

Capex Plans

Return on Investment

Return on Investment

On Principal Investments
Waterfront development
Profit from water supply and hydro power generation
from Yeongju & Bohyunsan dams
Other support measures through resolution at policy
coordination meetings
On Financing Costs
Support from allocation of government budget

(Year)
(KRW bn)

~2012

2013

2014~

SUM

2,555.3

19.5

101.1

2,675.9

Government support for operational investments for

government affairs
Revenue from ports
Sales of lots at logistics center
Sales of port management rights
* Company Data

22

Financial Profile

23

2013 Financial Highlights

Achieved an all-time high net income of KRW 348.1bn
Reduced Liabilities to Capital ratio by 2.0% and financial liabilities by KRW 265.5bn year-on-year
- The first decline since we started executing national project

Balance Sheet (KRW Billion)

2013

2012

Current Assets

5,785.5

5,213.0

Total Assets

25,603.9

25,016.4

Current Liabilities

3,358.5

2,722,7

Total Liabilities

13,998.4

13,777.9

Paid-in Capital

6,898.7

6,815.1

Total Equity

11,605.4

11,238.5

Total Liabilities & Owners Equity

25,603.9

25,016.4

Income Statement (KRW Billion)

2013

2012

Revenue

3,645.4

3,668.4

Cost of Sales

2,989.3

3,117.1

SG&A

123.9

117.0

Operating Income

532.1

434.3

Income Before Tax

456.9

401.7

Net Income

348.1

308.3

Source: Company financials; all items under K-IFRS

24