The South Korean government including the Fair Trade Commission (FTC) is planning to alter the minimum domestic asset requirement for conglomerate designation from five trillion won to 10 trillion won within this month. At present, the number of South Korean corporate groups with an asset of five trillion won to 10 trillion won is 28, including Kakao, Celltrion, Harim, KCC, Hankook Tire, KOLON, Dongbu, Halla, Dongkuk Steel, Hanjin Heavy Industries, Taeyoung and Amore Pacific, and the number of their subsidiaries is 561. This year, a total of 65 groups have been classified as conglomerates and each of Harim and KCC recorded an asset of approximately 9.9 trillion won.
According to the Fair Trade Act, any corporate group designated as a member of the conglomerate group cannot be engaged in new mutual investment and cross-shareholding and are subjected to restrictions on debt guarantee with respect to its subsidiaries, the voting rights of its subsidiaries in the banking and insurance sectors and preferential contracts in favor of its subsidiaries. At the same time, it is subjected to stricter rules with regard to public notification obligations while being governed by relevant laws by no less than 64 government agencies adopting the designation criteria of the FTC. Once the minimum requirement is doubled as mentioned above, the 28 corporate groups can be free from the regulations at least for a while.
Furthermore, they can benefit from a variety of support measures for small and medium-sized enterprises (SMEs). The examples include venture capital investments in their subsidiaries, more tax credits regarding R&D expenses and participation in software supply projects in the public sector. When it comes to Kakao, higher stakes in Internet-primary banks are anticipated, too. Kakao, which is an industrial capital, can own up to 4% of bank shares with voting rights as of now for banking-commerce separation. However, the government and the ruling party are planning to raise the limit on bank shares that can be owned by non-conglomerate industrial capitals to 50% in the upcoming 20th National Assembly.
Still, some of the regulations are to remain intact even after the alteration in view of the difference between the asset sizes of the 28 and smaller SMEs. For instance, the FTC is going to keep applying the regulations on preferential contracts to those with an asset of at least five trillion won.