Heads of family-run conglomerates continue to control empires with little stakes

Owners of Korea’s leading family-run conglomerates, or chaebol, are still opting to employ circular intra-group shareholding practices to run a large number of affiliates with little or no stake ownership, the state-run antitrust regulator said Thursday.

According to the Fair Trade Commission, each chairperson of the country’s top 38 chaebol groups with assets in excess of 5 trillion won ($4.7 billion) owned an average 2.15 percent of the total shares last year, while their relatives held 2.18 percent.

This was, however, supplanted by 47.27 percent control exercised by the owner’s family through a complex arrangement of cross-shareholdings of affiliates.

An additional 2.38 percent of stocks were held by company executives, nonprofit organizations and treasury shares that are “friendly” to the chairpersons and their kin.

Despite the relatively weak direct hold on their businesses, the antitrust watchdog said, chaebol owners raised the level of their stakes to an average 53.98 percent last year, up 3.48 percent from the previous year and the highest figure in 20 years.

Of the top 55 companies here, the agency disclosed details of the complex holdings of 38 conglomerates this year that were subject to restrictions on mutual investment and loan guarantees.

The FTC said chaebol owners and their families did not own a single share in 949 companies, about 69.6 percent of the total 1,364 affiliates listed, but controlled them indirectly.

When it comes to the nation’s top 10 conglomerates, the average stake of owners had remained at the 1 percent range since 2000, while the stake through cross shareholding continued to increase from 35 percent to 50 percent.

Of the 38 companies inspected, 10 have been operated under a holding company structure, with three others delaying the transition, the FTC said.

However, 13 companies, including Samsung and Hyundai Motors, were found to have maintained a “recurring investment” scheme among more than two affiliates using the legal loophole that bans only the mutual investment between two.

“The rate of internal transaction among conglomerates had remained at the early 50 percent range in the recent five years. Following the restructuring of Kumho Asiana last year, the figure seemed to decrease temporarily, but bounced back this year,” said Chung Joon-won, director general of competition policy at the FTC.

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


jylee@heraldcorp.com