Corporate Governance Issues
As Mirae Asset Securities was chosen to be the preferred bidder to take over KDB Daewoo Securities, there is rising interest in the direction of the Mirae Asset Financial Group’s governance structure reorganization in the merger process in the future. This is because there are a lot of issues related to the merger, such as the weakening of the control of the largest shareholder according to the share value drop of the merged corporation, the conversion to a financial holding company, and the coming revision of the Specialized Credit Financial Business Act which is currently pending in the National Assembly.
According to industry sources on Dec. 27, the National Policy Committee currently discusses how to deal with the amendment to limit the total amount of investment of credit finance corporations, including capital companies, within 100 percent of their equity capital. When it exceeds 100 percent, the company should dispose of excess shares within five years after passing the amendment or increase their equity capital to lower the level under 100 percent.
In terms of face value as of the end of September, Mirae Asset Capital had a 38 percent stake worth 672.4 billion won (US$574.46 million) in Mirae Asset Securities and a 19 percent stake worth 169.3 billion won (US$144.64 million) in Mirae Asset Life Insurance, reaching 150 percent of its equity capital worth 590.3 billion won (US$504.31 million). Accordingly, Chairman Park Hyeon-joo, the largest shareholder, should increase capital by issuing new stocks or sell excess shares when the revision of the Specialized Credit Financial Business Act is passed. When Park participates in a paid-in capital increase, he needs additional funds. When he sells his shares, his control of the company can be threatened.
In addition, the control of Mirae Asset Capital over the integrated entity of Mirae Asset and KDB Daewoo Securities can be weakened in the merger process as well. Industry sources expect that the share value of Mirae Asset Capital will drop from the current 38 percent to some 10 percent as the size of Mirae Asset and Daewoo Securities increases. In a bid to improve the control of the largest shareholder, the company needs to purchase 48 percent of the shares of Daewoo Securities, which become treasury stocks in the merger process. However, it is difficult to do so for the cash-strapped Mirae Asset Capital.
An industry source said, “Even if the Specialized Credit Financial Business Act is passed at the National Assembly, the grace period will be five years. Since it is enough time to prepare, the governance structure of Mirae Asset Group is unlikely to be reshuffled a lot. However, there is the possibility for the group to reorganize the management structure, including the creation of a financial holding company following the takeover of Daewoo Securities, as the group will own the nation’s largest securities firm.”