Cross Shareholding of Conglomerates
The amount of cross shareholding loops of Korean conglomerates decreased more than half within the last year.
Big corporations, feeling pressured to not create a negative public image when cross shareholding structures are revealed under the new circular equity investment prohibition bill effective from July 25, stepped forward to ease their cross shareholding status.
According to research on the equity structure of 13 groups with cross shareholding (annular) loops among 49 circular equity investment prohibited conglomerates done by a corporate performance evaluation company CEO Score on August 6, there were 50 cross shareholding loops as of the end of last month.
Compared to the 107 loops found in April last year, more than half (53.3 percent), have been disconnected. Circular equity investment loops with more than 1 percent of equity between investor and investee were included, but new loops added after April last year were excluded.
Lotte and Samsung, who have the most complicated structures, moved fast. Since both groups are on the cusp of corporate management succession, they needed to solve this problem quickly.
Lotte reduced 41 loops to 10 at the end of last month, compared to 51 loops connecting Lotte Confectionery to Lotte Shopping, to Lotte Aluminium, and back to Lotte Confectionery. Lotte moved each affiliate company’s shares of group entities to Lotte Shopping and Lotte Confectionery, the essence of their circular shareholding, and simplified the management structure.
Samsung started to redesign its own equity structure by transferring 3.81 percent of Samsung Card shares held by Samsung Electro-Mechanics and 2.54 percent of Samsung C&T to Samsung Life Insurance at the end of last year. It also disconnected two more loops by moving Samsung Card’s 4.67 percent of Cheil Industries shares to Samsung Electronics this year.
In addition, Samsung Life Insurance transferred 4.65 percent of Samsung C&T shares, disconnecting six more loops. Cheil Industries also sold 4 percent of Everland shares to Samsung SDI, cutting two loops. Samsung might even establish a holding company system and divide financial services.
Dongbu removed all five circular shareholding loops connecting Dongbu Steel to Dongbu Life Insurance and then to Donbgu Corporation, which led back to Dongbu Steel. Dongbu vertically structured financial service sectors, and secured liquidity by selling some shares of Dongbu Steel.
On the other hand, Hyundai Motor Group, expected to have Hyundai Mobis as a holding company, will probably stay the same for a while, since restructuring requires substantial capital expenditures, and Chairman Jung Mong-goo is still in good condition.