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Chaebol family control drops a bit

Sept 06,2019
Korea’s largest conglomerates are clearing up their cross shareholdings, according to recent analysis by the regulator.

The Fair Trade Commission (FTC) reported Thursday that among the country’s largest 59 conglomerates by assets, only four business groups still had circular shareholding structures as of May 15, down from six conglomerates a year earlier.

Korean business groups have traditionally relied on circular shareholding structures in order to maintain the influence of the founding family. The FTC regulates such mutual investments between affiliates under large conglomerates, and it publishes a list of business groups and their chiefs every year.

The FTC said that Samsung, Hyundai Heavy Industries and Hyundai Development Company completely rid themselves of the offending links, while Taekwang created a circular shareholding last year when its affiliates merged.

The three other business groups that as of May employed the structure were Hyundai Motor Group, Youngpoong and SM.

The FTC said that the heads of Korea’s largest conglomerates and their families owned an average of 3.9 percent of the shares of companies under the business groups this year, down from 4.3 percent in 2015.

Effective ownership of the conglomerates by the chiefs and their families has also slightly decreased.

The internal shareholding rate, or the share of equity controlled by heads, their families and affiliate companies, of the country’s top 51 conglomerates also fell to 57.5 percent this year from 58.0 percent in 2017.

The figure serves as a measure of influence the heads have over the business groups, as they usually hold a significant stake in affiliate companies.

The latest analysis indicates that the intricate shareholding structure in Korea’s top conglomerates has been somewhat resolved as a result of government efforts to simplify or clear up such practices.

The FTC remains watchful, saying that there should be policy improvements considering instances of new cross-affiliate investments and increasing influence by heads and their families through non-profit organizations.

The number of non-profit organizations under large conglomerates that have made investments into other affiliates increased to 69 this year from 65 in 2015.

“The heads and their family members, who own less than 4 percent of shares, continue to control large corporate groups using measures such as share buying through affiliates,” said Kim Sung-sam, director of the business group bureau at the FTC. “There continues to be concerns of increasing control by [conglomerate] heads through indirect investments.”

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]