Benefits of Making Business in North Korea | Buy & Sell Business

1. BENEFITS OF MAKING BUSINESS IN NORTH KOREA WWW.MERGERSCORP.COM

2. At MergersCorp M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction. It is our goal to make the process of either buying a new business or selling your current business as smooth and efficient as possible. We know how important confidentiality is to our sellers and we treat it with the utmost importance. WWW.MERGERSCORP.COM

3. BENEFITS OF MAKING BUSINESS IN NORTH KOREA WWW.MERGERSCORP.COM

4. Country Overview For decades North Korea has been one of the world's most secretive societies. It is one of the few countries still under nominally communist rule. North Korea's nuclear ambitions have exacerbated its rigidly maintained isolation from the rest of the world. The country emerged in 1948 amid the chaos following the end of the Second World War. Its history is dominated by its Great Leader, Kim Il-sung, who shaped political affairs for almost half a century. Decades of this rigid state-controlled system have led to stagnation and a leadership dependent on the cult of personality. The totalitarian state also stands accused of systematic human rights abuses.

5. Executive Summary The longest river of North Korea is the Yalu, in Korean called the Amnok. It rises on the southern slope of Mount Paektu and flows southwestward for some 500 miles (800 km) to its mouth on Korea Bay. The Tumen River also begins at Mount Paektu but runs northeastward for about 325 miles to the East Sea. There are no large streams along the east coast except for the Tumen River, and all the significant rivers, such as the Yalu, Ch’ŏngch’ŏn, Taedong, Chaeryŏng, and Yesŏng, drain to the Yellow Sea. The Korean peninsula is one of the most ethnically homogeneous regions in the world. The North Korean population, which has been largely isolated since 1945. All Koreans speak the Korean language

6. Introduction – Doing business in North Korea North Korea is a planned industrial economy with the Central Planning Committee undertaking planning in coordination with the General Bureau of Provincial Industry which caters to specific regions’ production, resource allocation, and sales needs. North Korea’s major industries are mining with US$6 trillion- worth of coal, gold, iron, and zinc, among others, and chemicals, metallurgy, renewable energy, food, textiles, and tourism. Its agriculture is hobbled by limited mechanization, soil degradation, and non-use of commercial fertilizers. The country ranks as one of the top growers of fresh fruits and apple grower.

7. Conducting business in North Korea One is a set-up where a foreign firm and the North Korean government equally invest and have business control over a joint venture company. The two parties equally share the profits. In another type of joint venture, a foreign company and the North Korean government jointly invest, but the latter has control over the business. But the partner firm can participate in a joint management committee. In this case, profits or losses are shared by both parties. The third business option is called a “foreign company.” This option allows foreign companies to own 100% of their business entity in North Korea. With this option, the foreign firm has full control of the business and the North Korean government has “no rights” to influence the management.. There are 3 options for foreign companies looking to enter North Korea. First, there are 2 types of joint ventures in North Korea.

8. Taxation in North Korea All direct taxes were abolished in 1974; the DPRK thus became the first country in the world to abolish income taxes collected from its citizens. The government collects a percentage (turnover tax) on all transactions between producers and state marketing agencies. Fees are charged to farmers for seeds, fertilizer, irrigation water, and equipment. Consumers pay a tax for the use of water and certain other household amenities. The tax on collective farms is 15% of the harvest, paid in kind.. All foreign-invested enterprises are subject to income, property, turnover, and local taxes. In the four special economic zones established by the government, one in 1991 and three in 2002, the tax on profits for most enterprises is set at 14%; for enterprises involving high technology, infrastructure construction, or light industry, the tax rate is 10%.

9. Trade North Korea is the 134th largest export economy in the world. In 2017, North Korea exported $1.74B and imported $3.42B, resulting in a negative trade balance of $1.69B. The top exports of North Korea are Coal Briquettes ($367M), Non-Knit Men's Coats ($139M), Molluscs ($137M), Non-Knit Women's Coats ($128M) and Non-Knit Men's Suits ($105M), using the 1992 revision of the HS (Harmonized System) classification. Its top imports are Synthetic Filament Yarn Woven Fabric ($200M), Soybean Oil ($110M), Broadcasting Equipment ($83.8M), Video Displays ($79.8M) and Light Rubberized Knitted Fabric ($72.3M).

10. Banking in North Korea The North Korean won is the official currency, and the Central Bank of the Democratic People’s Republic of Korea is the sole bank of issue. It receives all national revenues and precious metals and provides government agencies with working capital. There are several other state banks, all supervised by the Central Bank. Among these is the Foreign Trade Bank, which handles all foreign transactions and, when applicable, foreign currencies. A limited amount of joint-venture banking was allowed beginning in the late 1980s, and later private and corporate savings accounts for nonresidents were also permitted. In an attempt to regain control over currency and markets, the government in late 2009 revalued the won to 1 percent of its existing value (thus eliminating virtually all savings individuals had accumulated), shut down markets, and banned the use of foreign currencies. These measures caused an economic crisis and prompted otherwise rare public protests by citizens.

11. Our M&A Process NEGOTIATION & CLOSE POST MERGER INTEGRATION (PMI) INTEGRATION (PMI) POST MERGER TARGET APPRAISAL APPROACH DUE DILIGENCE Key Areas  Target & market analysis;  Initial assessment of synergies & value drivers;  Indicative valuation;  Go or No-Go decision;  Preparation of transaction documents (NDA – Non- disclosure Agreement/LOI- Letter of Intent);  Select Transaction team;  Appoint advisors;  Consider funding ability.  Initial approach letter;  Signing of NDA;  Prepare & share initial information requests;  Formulation of LOI (Letter of Intent) & possible negotiations;  Initial meeting and Q&A;  Circulate information on the Target to the Transaction team.  Set scope of due diligence;  Set up VDR (virtual data room);  Coordinating of due diligence, further meetings and Q&A sessions;  Consider points relevant to the Post-Merger (PMI) phase;  Revisit indicative valuation & prepare detailed valuation based on due diligence findings;  SPA negotiations with the seller;  Development of final structure (share/asset deal) and final valuation;  Approvals;  Signing of SPA & Close.  Consider the extent of integration;  Development of 100 Day PMI Plan;  Consider short & long term objectives;  Estimate requirements to capture synergies;  Determine resource needs & optimal allocation. Parties Involved  CFO;  Head of M&A;  Accountants;  Corporate finance advisors;  Consultants.  Senior management;  CEO, CFO, CTO;  Strategy director;  Head of M&A;  Head of Business Development;  Consultants.  Company general counsel;  Lawyers;  Senior management.  Company general counsel;  Lawyers;  Senior management/HR. 11 © Midaxo 2018 www.midaxo.com

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