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Chaebol groups sell shares in subsidiaries over strengthened intercompany trade measures

From left: Samsung Electronics Vice Chairman Lee Jae-yong, Hotel Shilla President Lee Bu-jin and Samsung Welfare Foundation CEO Lee Seo-hyun (Yonhap)
From left: Samsung Electronics Vice Chairman Lee Jae-yong, Hotel Shilla President Lee Bu-jin and Samsung Welfare Foundation CEO Lee Seo-hyun (Yonhap)

Descendants of South Korea's chaebol founders have recently sold their stakes in spin-offs in an apparent move to avoid the antitrust watchdog’s tougher intra-group trade scrutiny based on the revised fair trade act. 

The Korea Fair Trade Committee’s revised fair trade act came into effect on Dec. 30, expanding the list of target companies in order to prevent chaebol family owners from fattening their wealth through affiliates in family business.

Previously, the regulation targeted listed companies that are 30 percent or more owned by the chaebol owner’s family and relatives -- including spouses, blood relatives up to second cousins and in-laws of cousins -- and unlisted firms with 20 percent or more owned by them. But under the revised bill, the threshold has been set at 20 percent for both cases. 

On Thursday, Hyundai Motor Group Chairman Chung Euisun and his father, honorary group chief Chung Mong-koo, sold a combined 10 percent stake in Hyundai Glovis to the global private equity firm Carlyle Group.

The stake sale, valued at around 610 billion won ($513 million), was sold through block trading, making the Carlyle Group the third-largest shareholder in Hyundai Glovis.

Through the deal, Hyundai Motor Chairman Chung and his families’ share fell to 19.99 percent from 29.99 percent. 

In October, the owner family of LG Group also sold 60 percent of its shares in its in-house maintenance, repair and operations (MRO) unit S&I Corporation to GS E&C. 

S&I, LG Group’s wholly owned subsidiary, has grown through intercompany transactions, with LG’s affiliates such as LG Electronics and LG Chem accounting for more than 70 percent of the company’s total revenue in 2019.

Last month, Samsung Electronics Chairman Lee Jae-yong’s youngest sister Lee Seo-hyun sold half of her total 3.46 percent shares in Samsung Life, reducing the total shares in Samsung Life owned by owner family to 19.09 percent from the previous 20.82 percent.

Market insiders said that all other Samsung Life’ affiliates like Samsung Card and Samsung Asset Management have avoided the regulatory net, as well as allowing the owner family to prepare heavy inheritance tax dues.

“Even if the group makes an intercompany deal through a fair way, there’s always a risk to come under the antitrust watchdog’s scrutiny. So there is no other option for groups to adjust their stake or restructure the company governance through M&A or sales to minimize the risk,” said an industry insider. 

According to the antitrust watchdog, with the revised law, some 600 affiliated companies have become subject to chaebol owner’s sales of portion of their stake. 

Newly added groups include Daebang Construction & Engineering with 36 affiliates, followed by GS (23), Hoban E&C, Shinsegae (19) and Hyosung Group (18) and Harim (18).

Last year, GS had the most affiliates at 34, followed by Shinsegae (20), LS (17), SK (14), Samsung (11), Hyundai and Hanjin (10).

By Kim Da-sol (ddd@heraldcorp.com)
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