Stricter Regulations on Holding Company System
As South Korea’s antitrust regulator is pushing to increase a holding company's minimum stake ownership in its subsidiaries by 10 percentage points, Samsung Group’s plan to turn into a holding company has practically fallen through.
The Fair Trade Commission (FTC) disclosed on August 26 its proposal to revise the Monopoly Regulation and Fair Trade Act. The commission's amendment proposal is largely divided into four sectors – the reorganization of the law enforcement system, the reorganization of policies for conglomerate groups, the establishment of an innovative growth ecosystem and the reliability of law enforcement. A stricter regulation on the holding company system is the most noticeable in the revision, together with the sharing of the commission's exclusive complaint right with the prosecution.
If the act is revised as proposed by the commission, the number of the companies that would be subject to regulations on intra-group trading would increase sharply.
The FTC has required conglomerates, which are seeking to transform into a new holding company, to own at least a 30 percent stake in their listed affiliates from the current 20 percent, and a 50 percent stake in their unlisted companies from the 40 percent. With the stricter requirement, Samsung Group is highly likely to give up its plan to introduce a holding company system because it has to spend approximately 90 trillion won (US$80.43 billion) to acquire the stake.
In addition, SK Group, which is considering turning into the mid-holding company based on SK Telecom, is expected to scrap the plan as it needs over 6 trillion won (US$5.36 billion) to purchase the stake. Yoo Jung-joo, head of the business system division at the Korea Economic Research Institute, said, “The government has encouraged companies to turn into a holding company but strengthening the regulations is virtually blocking the introduction of the holding company system.”
The FTC will revise the bill enabling it to restrict intra-group business transactions of both listed and unlisted companies in which family-owned conglomerates own more than a 20 percent stake. Previously, it kept in check chaebol that owned stakes larger than 30 percent in listed companies or 20 percent in unlisted companies. It will also include monitoring and regulating companies doing businesses with their subsidiaries in which the parent companies hold more than a 50 percent controlling stake. The expansion of the restrictions on intra-group transactions will have the FTC watch 607 companies, up from the current 231.