As civic groups and some members of the ruling Democratic Party criticize its recent proposal to amend the fair trade law, the Fair Trade Commission (FTC) has come forward to counter the argument.
One criticism concerns the FTC’s proposal that the minimum stake that a holding company is required to have in its subsidiaries be raised only for new holding companies and not for existing ones. Critics argue that the higher ownership requirement should be applied both new and existing holding companies.
The FTC said that there would be a huge burden of expenses on companies when the new rules are applied to existing holding companies as well.
According to the data from the FTC, SK Group would need a total of 7.49 trillion won (US$6.63 billion) to purchase an additional stake in SK Telecom Co., SK Bioland Co., SK Hynix Inc., and SK Securities Co., if existing holding companies are also required to own more than 30 percent of their subsidiaries from the current 20 percent. SK Securities is no longer an affiliate of SK Group as the company has recently been sold off.
Celltrion Holdings Co. would also need 3.97 trillion won (US$3.52 billion) to buy an additional stake in Celltrion Inc.
Likewise, when stricter rules are applied to existing holding companies, 33 holdings companies would need to spend a total of 13.53 trillion won (US$11.98 billion) to additionally purchase stakes in 44 listed subsidiaries and grandson companies.
Civic groups have been denouncing the FTC’s proposal, claiming it favors conglomerates that have already formed a holding company structure.
At a press conference, an official from the FTC said, “It is necessary to secure legal stability and protect the credibility of existing holding companies.” The government introduced a holding company system in 1999 as an alternative to the cross-holding structure and gave tax benefits to encourage businesses to establish a holding company. The official said it is necessary to protect the business groups that followed the government’s previous policy.
In addition, the FTC also noted that small and medium-sized holding companies, which generate no concerns about the concentration of economic power, would also need to spend a huge amount of money when the minimum stake ownership is raised.
The FTC also refuted the argument of the business community, which has claimed that stricter regulations on intra-group deals would make domestic companies more vulnerable to hostile mergers and acquisitions (M&As). Some companies claimed that they would be forced to reduce stakes in some affiliates to meet the new standards and would have difficulties in maintaining managerial rights if their owner families are required to hold more than a 20 percent stake in listed subsidiaries.
In this regard, the FTC said that the tightened rules are meant to crack down on unfair deals, not to prompt owner families to sell off their stakes. It said there would be no problem as businesses should improve their unfair business practices in order not to be regulated. It also said that business groups would not suffer instability in management rights or face hostile takeover bids even when the stake of owner family members is lowered. This is because the level of their internal stake ownership, including the stake of other affiliated parties, is already high.