South Korea’s antitrust watchdog on Sunday said that the recent merger of Samsung affiliates has tightened cross-shareholdings among group companies, ordering its battery unit to reduce its stake in the holding company.

“The number of cross-shareholding links may have been reduced to seven from 10 following the merger of Samsung C&T with Cheil Industries (on Sept. 1),” the Fair Trade Commission said in a statement. “But we have found the ties have been further strengthened.”

The current antitrust rules prohibit conglomerates from creating a new circular ownership among affiliates through equity investments. 

The FTC said Samsung SDI should dispose of its 5 million or 2.6 percent shares in Samsung C&T, now the de facto holding company of Samsung Group, by the March 1 deadline. The shares were valued at about 727.5 billion won ($622 million) based on Friday’s closing prices.

Samsung said it would not appeal the FTC’s decision but instead ask for a grace period considering the market impact.

Samsung carried out the merger between Samsung C&T and Cheil Industries as part of its efforts to strengthen the owner family’s control over the group as well as seeking business synergies among the companies.

With the merger, Samsung Electronics vice chairman and the group’s heir apparent Lee Jae-yong has become the largest shareholder of Samsung C&T with a 16.5 percent share, while other family members and favorable investors own a combined stake of more than 50 percent.

“Despite the planned share sell-off, there will be no direct impact on the family’s ownership structure,” said Yang Yong-hyun, an analyst at Korea Development Institute. “The necessary funding of about 700 billion won, is also not that high considering the company size.”

During the grace period, Samsung is expected to seek large organizational investors who would purchase the new shares without seriously impacting the asset value of its shareholders.

In the meantime, industry watchers say that local companies are exposed to an unnecessary level of risk due to cross-shareholding that negatively affects their corporate management and stock markets.

Currently, there are eight conglomerates that maintain cross-shareholdings in Korea and only three of them -- Hyundai Motor Group, Hyundai Heavy Industries and Hyundai Development Company -- are expected to face direct ownership impact when they abandon the practice, according to Economic Reform Research, a private think tank.

For Samsung, it could unload all its cross-shareholding ties among affiliates when three companies -- Samsung Electro-Mechanics (2.64 percent), Samsung SDI (4.77 percent) and Samsung Life Insurance (1.38 percent) -- sell their combined stake worth about 2.42 trillion won in Samsung C&T. 

By Lee Ji-yoon (jylee@heraldcorp.com)