Intra-party chaebol transactions flat, but up at big groups

FTC director Sung Kyung-jae, announces its study on conglomerates internal transactions at the FTC headquarters in Sejong on Nov. 12. [YONHAP]

The value of related-party transactions between companies within the same chaebol was virtually unchanged in 2019 from 2018, but large groups with significant founding-family shareholdings reported more trade between related companies.

According to the Fair Trade Commission (FTC) on Thursday, last year intra-chaebol transactions totaled 196.7 trillion won ($176.4 billion). That’s a slight drop from 197.8 trillion won in 2018.

These transactions were 12.2 percent of all chaebol revenue. That’s the same as in 2018.

The study was of 64 groups with total assets exceeding 5 trillion won.

Among the 64, 55 are controlled by members of the founding families, including Samsung and Hyundai Motor, as well as SK and LG and Lotte. The nine are headed by non-founding families. These include Posco, Nonghyup and KT as well as S-Oil.

The total number of companies in the groups was 1,955.

For the past three years, intra-chaebol transactions have been at least 190 trillion.

The FTC noted that business transactions were heaviest among unlisted group companies, especially the 55 controlled by founding families.

Related-party group transactions by the 1,677 unlisted companies in the study was 19.9 percent of their total business, which is 11.4 percentage points higher than the 8.5 percent of the 278 listed companies.

For companies in groups controlled by the founding families, 12.5 percent of their business was intra-chaebol. For professionally managed groups in the study, the rate was 10.4 percent.

Such transactions accounted for 14.1 percent of total revenue of the largest 10 chaebol by assets, up from 2018’s 13.8 percent.

Internal transactions in chaebol where the second-generation of the founding family have more than a 20 percent stake were 19.1 percent of total revenue. That’s significantly higher than the 12.3 percent for companies whose second-generation founding family own less than 20 percent.

Among the chaebol, Celltrion topped the list at 37.3 percent, SK followed at 26 percent and Taeyoung, a construction and media company that owns SBS, came in at 21.4 percent. Hyundai Motor ranked fourth with 20.1 percent.

By amount, SK topped the list with 41.7 trillion won of related-party transactions, followed by Hyundai Motor with 37.3 trillion won and Samsung with 25.9 trillion won.

“There has been a vivid change to internal transactions among affiliates under conglomerates despite the law limiting such practices having been enacted in 2015,” said Sung Kyung-jae, head of the FTC’s business group policy division. “However, there have been an increase of such transactions among the top 10 conglomerates.”

In 2015, the Fair Trade Act was reformed and the monitoring of related-party transactions strengthened. Listed chaebol companies where the founding family owns more than 30 percent of shares are closely monitored, while the same goes for unlisted companies where the families have more than 20 percent of the stock.

Those that are found to have engaged in unfair business practices could face penalties, including prison.

The goal is to prevent the families from manipulating group companies, especially unlisted companies, in order to extract wealth or illegally pass wealth to heirs.

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