Corporate Governance Improved
Domestic chaebol groups have eliminated more than 85% of the cross shareholdings among their affiliates, a report released by the Fair Trade Commission (FTC) shows.
The report examined the cross shareholdings of 31 business groups, all with assets exceeding 10 trillion won (US$9 billion).
It found that the number of cross shareholding links among the subsidiaries of the surveyed groups totaled 15 as of April 10, a sharp drop from 93 in May last year. Business groups subject to cross shareholding restrictions are prohibited from mutual investments, new circular shareholdings and debt guarantees among affiliated companies under the Fair Trade Act.
The Lotte Group had 67 links, but now has no circular link.
On April 5, Hyundai Department Store cut three links as its owner family directly purchased shares from group subsidiaries. On March 29, Daelim Corporation broke one link by purchasing its stocks from Ora Tourism Company. In addition, Youngpoong reduced seven links to one, and Hyundai Heavy Industries reduced two rings to one through a spin-off in April last year.
However, there was no change in the number of links at Hyundai Motor Group (four links) and Nonghyup (two links).
Hyundai Motor Group will also get rid of circular equity ties among its key subsidiaries by implementing its corporate governance reform announced in March. One variable is the US hedge fund Eliot Management’s call for additional measures to protect the interests of minority shareholders of the involved affiliates.
"Our capital market is already open enough to accommodate such aggressive activist hedge fundsas Eliot," said Kim Sang-jo, chairman of the Fair Trade Commission. “Korean companies should accept the reality and improve their corporate governance structure to avoid being assaulted by hostile investors."
On April 10, Samsung Group eliminated three cross shareholding arrangements as Samsung SDI sold off its 2.1 percent stake in Samsung C&T.
But Samsung still has four links left and faces pressure from the government for further measures. The group is expected to take action get rid of the remaining cross shareholding arrangements.