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Chaebol firms owned by heirs depend more on intragroup deals
By Korea HeraldPublished : Sept. 8, 2016 - 16:42
Chaebol companies owned by potential heirs from the business-controlling family make easy money, relying on contracts from affiliate companies, a phenomenon that latest data shows is strengthening despite increased scrutiny.
According to an analysis by the Fair Trade Commission of 47 large conglomerates and their 1,274 affiliate companies, intragroup trade accounts for 59.4 percent of all sales at companies wholly owned by the heirs as of end-2015, up 7.6 percent from a year earlier.
The share of intragroup deals at companies more than 20 percent owned by the parent group’s controlling family also rose from 7.6 percent to 9 percent.
“Our findings point to a positive correlation that continues to exist between equity stakes held by the controlling families and the dependency on intragroup trade,” said Kim Jung-gi, a FTC official, at a press briefing.
When heirs are involved, the correlation is stronger, the FTC study shows.
On average, companies 20 percent or more owned by the heirs generate 12.5 percent of sales from intragroup contracts. The ratio rises to 25.5 percent when the heir’s ownership of shares exceeds 50 percent. When a company is entirely owned by those in the succession line, intragroup deals take up near 60 percent of all sales.
The figures for companies owned by the controlling families, not just by the heirs, stand at 9 percent for the 20-plus stake group, rising to 34.6 for those with a 100 percent stake.
The findings come despite increased public criticism and legal scrutiny of the inappropriate, if not unlawful, practices of usurping corporate opportunities for the benefit of chaebol families.
Corporate governance activists claim that chaebol groups such as Samsung, Hyundai and SK use intragroup trade as a way of transferring wealth to their children without paying the country’s hefty inheritance taxes.
The FTC data shows that SK, POSCO and Taeyoung have the highest level of intragroup trade as a percentage of total sales, at 24.2, 18.8 and 18.5, respectively.
By amount, the top three are SK, Hyundai Motor and Samsung groups.
Inter-affiliate deals amount to 33.3 trillion won at SK, while the figures for Hyundai Motor and Samsung stand at 30.9 trillion won and 19.6 trillion won. In 2014, Korea introduced a ban on intragroup deals, targeting listed companies more than 30 percent owned by a group’s controlling family. For non-listed companies, the bar is lower at 20 percent.
By Lee Sun-young (milaya@heraldcorp.com)
According to an analysis by the Fair Trade Commission of 47 large conglomerates and their 1,274 affiliate companies, intragroup trade accounts for 59.4 percent of all sales at companies wholly owned by the heirs as of end-2015, up 7.6 percent from a year earlier.
The share of intragroup deals at companies more than 20 percent owned by the parent group’s controlling family also rose from 7.6 percent to 9 percent.
“Our findings point to a positive correlation that continues to exist between equity stakes held by the controlling families and the dependency on intragroup trade,” said Kim Jung-gi, a FTC official, at a press briefing.
When heirs are involved, the correlation is stronger, the FTC study shows.
On average, companies 20 percent or more owned by the heirs generate 12.5 percent of sales from intragroup contracts. The ratio rises to 25.5 percent when the heir’s ownership of shares exceeds 50 percent. When a company is entirely owned by those in the succession line, intragroup deals take up near 60 percent of all sales.
The figures for companies owned by the controlling families, not just by the heirs, stand at 9 percent for the 20-plus stake group, rising to 34.6 for those with a 100 percent stake.
The findings come despite increased public criticism and legal scrutiny of the inappropriate, if not unlawful, practices of usurping corporate opportunities for the benefit of chaebol families.
Corporate governance activists claim that chaebol groups such as Samsung, Hyundai and SK use intragroup trade as a way of transferring wealth to their children without paying the country’s hefty inheritance taxes.
The FTC data shows that SK, POSCO and Taeyoung have the highest level of intragroup trade as a percentage of total sales, at 24.2, 18.8 and 18.5, respectively.
By amount, the top three are SK, Hyundai Motor and Samsung groups.
Inter-affiliate deals amount to 33.3 trillion won at SK, while the figures for Hyundai Motor and Samsung stand at 30.9 trillion won and 19.6 trillion won. In 2014, Korea introduced a ban on intragroup deals, targeting listed companies more than 30 percent owned by a group’s controlling family. For non-listed companies, the bar is lower at 20 percent.
By Lee Sun-young (milaya@heraldcorp.com)
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Articles by Korea Herald
