Shareholding Limit Meets Mixed Views

After the Fair Trade Commission reaffirmed the government's policy to maintain existing limits on domestic companies' equity investment in other companies, there is growing concern over its impact on the local stock market.

Many investors fear that if large shareholders rush to unload holdings that exceed the limit, the selling would not only weigh down on the affected issues but also dampen the entire equities market.

But other analysts say the excess stakes which must be sold are worth only about 4 trillion won ($3.1 billion), and will not have a big impact on the stock market, whose total value stands at 281 trillion won with daily turnover of over 2 trillion won. The fair trade watchdog gave local companies one year to shed the offending shareholdings.

In March, Hyundai Motor Co. sold some 79 million shares worth 650 billion won to its affiliates, Kia Motors Corp. and Inchon Iron & Steel Co. The transaction did not affect the stock market because it took place during after-hours trading, where prices are fixed at the day's closing level.

"Companies will likely transfer most of their excessive stakes to treasury stock or employee holdings or disperse them among their suppliers," said Ahn Dong-won, a director at Kiwoom.com Securities Co. He said he believes companies would not dare to sell the shares in the cash market because of the danger of depressing share prices amid shareholders' opposition.

Some say that in the long term, the equity investment limit will have positive effects on local stock prices. "This will speed up corporate restructuring and boost management transparency, which will lead to rising share prices," said Lee Keun-mo, a managing director at Good Morning Securities Co.

by Rah Hyeon-chul