South Korean conglomerates that have been trying to adopt a holding company structure to improve their governance and management transparency are now in a dilemma as the National Assembly, which used to tell them to eliminate cross-shareholding, is preparing bills to block the adoption of the structure.
Samsung Group, Lotte Group, Hyundai Heavy Industries Group and so on are currently looking to adopt the structure or set up an intermediate financial holding company within this year. However, this is unlikely to be easy with an increasing number of lawmakers being in favor of leftist economic policy in the wake of the Choi Soon-sil scandal and the next Presidential election being expected to be put forward following the impeachment of President Park Geun-hye.
These days, multiple lawmakers are calling for cancellation of repurchased shares or deprival of voting rights in the case of split-off for conversion to a holding company. This is being led by three opposition parties and even a new conservative party is agreeing to the demands. According to the commercial law, repurchased stocks have no voting rights but the rights are revived in the case of spin-off. The revived voting rights of these stocks can be used by enterprise owners wishing to have a firmer grip on their companies and what the lawmakers are trying to do is to prevent it.
At present, Samsung Group is looking to divide Samsung Electronics into a holding company and an operating company and adopt an intermediate financial holding company structure in which its financial subsidiaries are put together under the umbrella of Samsung Life Insurance. This, however, is likely to be thwarted if the bills are passed.
In the case of Lotte Group, which promised last year to turn itself into a holding company, it is still unclear when Hotel Lotte as its de facto holding company will go public. Lotte’s plan is to loosen its connection to Lotte Holdings Japan by means of the listing of Hotel Lotte and then complete the conversion by eliminating cross-shareholding. The conversion is expected to cost four trillion won to five trillion won.
Hyundai Motor Group is expected to set up a holding company to eliminate cross-shareholding as well but no specific action has been witnessed. Hyundai Motor Group’s cross-shareholding structure covers Hyundai Mobis, Hyundai Motor Company and Kia Motors. Hyundai Mobis, 6.96% of which is owned by Hyundai Motor Group chairman Chung Mong-koo, is the de facto holding company. In the case of a split-off of Hyundai Mobis, both holding and operating company shares are owned by Kia Motors and the entire group can be controlled by the holding company shares being secured. In addition, the succession of management rights can be completed once vice chairman Chung Eui-sun acquires the holding company shares from Kia Motors.
Hyundai Heavy Industries Group has already declared to adopt the structure through spin-off and the process is expected to go without a hitch in that time is required until the promulgation of the bills currently pending in the National Assembly. The group is planned to be divided into the six companies including Hyundai Heavy Industries, Hyundai Electrics, Hyundai Construction Machinery, Hyundai Robotics and Hyundai Green Energy. A shareholders' meeting, spin-off and re-listing are scheduled for February 27, April 1 and May 10 to this end, respectively.