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New idea to get chaebol to simplify

A study by the antitrust agency has shown that conglomerates are reluctant to convert their corporate governance structure to a holding company, which would simplify complicated cross-shareholdings among affiliates and improves transparency.

One way to encourage the shift is to allow nonfinancial businesses to own financial companies, including banks, and the government is contemplating such a change.

According to the Fair Trade Commission Wednesday, the total number of holding companies as of the third quarter rose compared to a year ago from 140 to 162. However, among Korea’s 27 conglomerates, there are only eight, or less than one third, governed under a holding company structure: SK, LG, GS, Nonghyup, Hanjin, CJ, Booyoung and LS.

Last year the number of conglomerates governed under the holding company system amounted to 15. The drop in numbers is largely because of a new standard for defining a conglomerate. Until last year, business groups whose combined assets exceeded 5 trillion won ($4.4 billion) were labeled conglomerates. This year, the standard was raised to 10 trillion won, leaving 25 business groups out of the list including the nation’s largest instant mobile messenger developer, Kakao, which was put on the list as a new entry earlier this year.

The two leading conglomerates in Korea, Samsung and Hyundai Motor, have yet to convert to a holding company structure, although there have been rumors that they have looked into it for years.

The government has recently recognized an additional incentive to make that change: allowing nonfinancial business groups to own financial companies.

Under the existing law, nonfinancial holding companies are banned from owning financial companies. In the case of Samsung Group, if it converts to a holding company system, it would first have to resolve the complicated cross-shareholdings that its nonfinancial affiliates have with its financial affiliates including the shares that Samsung Life Insurance owns in Samsung Electronics.

The government sees this regulation as an obstacle holding back major conglomerates like Samsung from actively pursuing a holding company governance structure.

“There is a need to create an environment where more conglomerates convert to a holding company structure,” said Kim Jung-ki, an FTC official.

Kim proposed an arrangement in which investments between the nonfinancial companies and the financial companies are restricted in certain ways.

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