Restrictions on big groups will affect much fewer

Shin Young-sun, secretary general of the Fair Trade Commission, center, announces a change in the categorization of conglomerates from combined assets of 5 trillion won (4.3 billion dollar) to 10 trillion won in the Sejong Government Complex on Wednesday. [NEWSIS]

The Fair Trade Commission (FTC) has raised the bar on categorizing conglomerates in Korea, increasing the combined assets threshold from 5 trillion won ($4.3 billion) to 10 trillion.

With the change, the number of big groups will shrink from the current 65 to 28. Companies that were recently recognized as conglomerates after their assets exceeded 5 trillion won, including mobile messenger app developer Kakao and pharmaceutical company Celltrion, will lose the designation.

Being labeled a conglomerate subjects a group to many new regulations.

The list will also from now on exclude public companies such as the Korea Electric Power Corporation and the Korea Land and Housing Corporation, which rank third and fourth on the list of giant Korean companies.

“Since the 5 trillion won standard was adopted in 2008, the country’s GDP has increased nearly 50 percent while the total assets of [the 65] big business groups have surged 101.3 percent,” said Shin Young-sun, the FTC secretary general, “and the average assets of these groups have expanded 144.6 percent.

“If the same level of regulation is applied to all these companies, it could affect the growth of the smaller members of the group, and we have decided to raise the standard.”

President Park Geun-hye raised the issue of smaller conglomerates suffering from over-regulation in a meeting with chief editors and publishers at the Blue House on April 26.

“Labeling big business groups as conglomerates is a system only found in Korea, and it needs to change according to the times,” Park said at the meeting. “Companies like Kakao will be restricted if they are labeled as big business groups. In this situation, what company would want to continue to grow?”

Since the IT company was included in the conglomerate category, it has aggressively complained about the restrictions on conglomerates. During a government-private sector meeting with the president at the Blue House last month, Hong Eun-taek, senior vice president of Kakao, said its start-up affiliates were being heavily regulated as a result and that reform in the regulation was necessary.

Kakao was labeled a conglomerate after its assets hit 5.83 trillion won. Celltrion was included when its assets hit 5.86 trillion won.

Business groups labeled as conglomerates are banned from cross-shareholding and are limited in the debt guarantees they can offer affiliates. Nonfinancial conglomerates are limited in owning shares or have voting rights in banks.

While Kakao and 25 other companies will be dropped from the list, the antitrust agency said it will continue to apply regulations on the groups’ founding families, such as giving contracts to companies owned by family members or violating regulations on public notifications like in changes in share ownership.

Among the companies that no longer will be included in the conglomerate club are the chicken company Harim (which has 9.99 trillion won in assets), KCC (9.81 trillion won), Hankook Tire (9.4 trillion won), Kolon (9.13 trillion won), Kyobo Life Insurance (8.52 trillion won) and Dongbu (8.19 trillion won).

Meanwhile, the antitrust agency said it has decided to exclude public companies from the list of big company groups, as state-owned companies are not controlled by founding families and therefore not vulnerable to management trying to use the companies to line their own pockets.

“Public companies’ unfair business practices will not be penalized under the big company group law but rather under antitrust laws,” the FTC secretary general said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]