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Cross Shareholding-based Conglomerates Showed Lower Dividend Payout Ratio
Dividend Payout Ratio
Cross Shareholding-based Conglomerates Showed Lower Dividend Payout Ratio
  • By Jack H. Park
  • January 5, 2015, 09:05
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The dividend payout ratio reaches approximately 60 percent for holding company-based business groups in Korea, while the percentage is limited to 13 percent for their counterparts based on cross shareholding. Under the circumstances, experts point out the government’s efforts to encourage them to pay greater dividends, including the plan for taxation on internal reserves, would not work as intended unless the corporate ownership structures of the latter are changed.

Market research firm CEO Score recently looked into the 1,220 or so subsidiaries of the 30 major business groups in Korea for their dividend payout ratios for 2009 to 2013 and found that 895 of them that submitted their reports for 2013 recorded an average payout ratio of 22.5 percent. Specifically, 11.3 trillion won (US$10.2 billion) out of the total net profits of 50.36 trillion won (US$45.34 billion) was paid as dividends. The overall average for the same period was 21.1 percent for all of those listed and closing their books in December, showing no significant difference from the percentage of the top 30 groups.

Still, the average of the 293 subsidiaries of the nine groups that are based on cross shareholding, including Samsung and Hyundai Motor, was just 13.3 percent, with their net profits amounting to 39.84 trillion won (US$35.90 billion), but dividends limited to 5.32 trillion won (US$4.8 billion). The net profits and dividend payments of the nine groups were equivalent to 79 percent and 47 percent of those of the top 30, respectively.

In contrast, the 466 subsidiaries of the 14 groups having holding companies, such as SK, LG, and GS, posted an average of 59.3 percent by paying 4.55 trillion won (US$4.10 billion) out of 7.66 trillion won (US$6.90 billion). These groups accounted for 15.2 percent of the net profits of the top 30, but no less than 40.2 percent of the dividends. The five groups without any major shareholder families, like S-Oil, POSCO, and KT, showed an average dividend payout ratio of 75 percent, 47 percentage points up from four years ago.

In 2013, KT recorded the highest payout ratio, 610 percent, among the 30 by paying 360 billion won (US$324 million) out of the net profit of 59 billion won (US$53 million). It was followed by KOLON (90 percent, 26 billion out of 28 billion won, or US$23 out of 25 million), Hyundai Heavy Industries (60.2 percent), S-Oil (54.8 percent), SK (43.9 percent), Doosan (41.2 percent), POSCO (37.5 percent), LG (36.8 percent), LS (35 percent), and CJ (29.6 percent). Hyundai Heavy Industries is the only cross-shareholding group in the top 10, and the six excluding KT, S-Oil, and POSCO have holding companies.

In addition, GS, Kumho Asiana, Dongbu, OCI, Hyosung and Dongkuk Steel out of the eight groups that paid dividends in spite of a net loss had holding companies. The other two are Hanjin and Hyundai, both with cross-shareholding structures.

The bottom 10 were Daewoo Engineering & Construction (0 percent), Hyundai Department Store (7.9 percent), Daelim (9 percent), Booyoung (9.6 percent), Hyundai Motor Company (9.7 percent), Shinsegae (13 percent), Samsung (13.4 percent), Lotte (16.8 percent), Youngpoong (18.6 percent), and Hanwha (21 percent). Hanwha is the only holding company-type group among them.

“The passiveness of the groups that are based on cross shareholding is because even the other share-owning subsidiaries have to pay taxes when a subsidiary pays dividends,” CEO Score President Park Joo-keun explained, adding, “The government will have to change this structure first if it is to meet the goal of dividend expansion.”