Intermediate Financial Holding Company
Corporate governance restructuring by large business groups that have their own financial subsidiaries, such as Hyundai Motor Group and Lotte Group, is likely to come to a halt as Korea Fair Trade Commission Chairman Kim Sang-jo recently said that the introduction of intermediate financial holding companies will be put off.
At present, the Lotte Group is planning to establish its holding company in October this year by merging the investment arms of Lotte Confectionery, Lotte Shopping, Lotte Chilsung and Lotte Food with one another. The holding company is scheduled to own shares in Lotte Card and Lotte Capital as well. Its problem is that a general holding company cannot own a financial subsidiary according to the current Fair Trade Act and, as such, the holding company has to dispose of its shares in Lotte Card and Lotte Capital or take them out of its holding company structure within two years from its inception unless the act is amended to allow the adoption of intermediate financial holding companies.
Although the Lotte Group’s financial business is not the key part of its business, it is still very closely related to the rest of its business units, and thus the group is likely to be reluctant to do so. Chairman Shin Dong-bin may directly own its financial subsidiary or take it out of the holding company structure to be owned by Hotel Lotte or Lotte Holdings Japan. This, however, costs trillions of won for share acquisition and is not free from controversies related to the violation of the Fair Trade Act, national wealth outflow, etc.
The Hyundai Motor Group, in the meantime, has had conversion to a holding company as one of its options in transferring the control of the group and removing its cross-shareholding structure covering Hyundai Mobis, Hyundai Motor Company and Kia Motors. However, it is unlikely to make any attempt to do so if the adoption of an intermediate holding company is put off. The group currently has five financial subsidiaries and it needs to maintain its control over Hyundai Capital, an installment financing company, in view of the scope of its business, that is, automobile manufacturing and sales. However, handling of the financial subsidiaries may become difficult without the adoption of an intermediate financial holding company.