Korean conglomerates’ cross shareholding practice, which has been used by chaebol owners as a means of securing control over subsidiaries with a tiny stake in them, is likely to disappear in the near future.
The Korea Fair Trade Commission (KFTC) announced on April 24 that, among the 57 South Korean business groups with the duty of public disclosure, only six had 41 cross shareholding arrangements as of April 20. This compares with 10 groups having 282 cross shareholding ties about one year ago when KFTC Chairman Kim Sang-jo embarked on chaebol reform.
The KFTC attributed the change in corporate governance structure to the Fair Trade Act which was revised in 2014 to prohibit new cross shareholdings and encourage conglomerates to voluntarily remove existing ones.
Back in July 2013, the number of such structures in South Korea amounted to 97,658. In other words, 99.96% of them have disappeared for five years so far.
During the past one year period, Lotte Group completely removed the 67 cross shareholding arrangement among its affiliates. Nonghyup, Hyundai Department Store and Daelim groups also got rid of their remaining equity ties among their subsidiaries.
Samsung Group reduced cross shareholding arrangements from seven to four while Hyundai Heavy Industries cut them from two to one. The two groups removed new cross shareholding ties that were created due to mergers or spin-offs of affiliates within the grace period stipulated in the Fair Trade Act.