Disentangling chaebol to cost trillions of won

Local conglomerates may need a combined 14.6 trillion won ($12.8 billion) to resolve their entangled cross-share ownership structures, a report showed yesterday, amid intensive debate over the reform of the family-owned business groups.

Samsung Group is expected to need just 4.3 trillion won for overhauling its governance structure and top automotive group Hyundai Motor Group is likely to need 6.09 trillion won to do the same, according to the report by Chaebul.com, a conglomerate research firm.

The report is based on six large business groups with cross-share ownership structures, and the costs are calculated based on how much a biggest shareholder or a group unit should buy stakes in an affiliate to cut the ownership structure.

Family-run conglomerates have played a role in boosting the country’s exports, which account for 50 percent of the economy. But they have also come under fire for cross-shareholdings, which allow a handful of people with small stakes to control the decision-making process at all of their subsidiaries, and for preying on smaller firms with their reckless expansion.

Samsung is well known for its complicated governance structure that involves affiliates Samsung Card, Samsung Everland, Samsung Life Insurance and Samsung Electronics.

Samsung Everland is a key shareholder of the top life insurer, which owns a 7.4 percent stake in Samsung Electronics. The tech heavyweight, which is the crown jewel of the group, controls a 35.3 percent stake in Samsung Card.

The cost of 4.3 trillion won is a third of the value of the stocks owned by Lee Kun-hee, chairman of Samsung Electronics, and his family members. For Hyundai Motor Group, the cost is less than two-thirds of nearly 10 trillion won in shareholder value by group Chairman Chung Mong-koo and his son Chung Eui-sun.

But if the capital to be transferred into a holding company system is calculated, costs are expected to nearly double to 7.9 trillion won for Samsung Group and 10.8 trillion won for Hyundai Motor Group, according to Chaebul.com.

The report came amid heated debate in the political circle over reforming conglomerates ahead of the December presidential election. Major presidential contenders have been pitching “economic democratization” as their key campaign election pledge to ease the concentration of economic power by chaebol.

According to the antitrust watchdog, owners of Korea’s top 10 chaebol and their family members increased shareholdings in affiliates over the past year. Out of 63 larger companies, 15 business conglomerates have a cross-share ownership structure.

Reviving a ceiling on equity investment by family-controlled conglomerates has emerged as one of the ways to limit conglomerates’ investment in other companies.

Those in favor of severing conglomerates’ cross-share ownership structure said the move will improve transparency and financial health. Yonhap