The government is pushing to come up with a unified proposal on new investment guidelines for South Korean conglomerates within the week, the Fair Trade Commission (FTC) said Monday.
Discussions between related ministries, including the finance and economy ministry, and the commerce and industry ministry, may be completed around Thursday, the corporate regulator said.
If differences are resolved, changes will be made to the Fair Trade Act that will be sent to the National Assembly for approval.
Parliament can then pass the new act or make its own revisions.
"Details are still being discussed but broad outlines, such as a ban on the so-called circular intra-group shareholding system, will likely be included," said Han Chol-soo, head of the commission's policy bureau.
The complex and interconnected shareholding system allows owner families of local conglomerates to control affiliates with only small direct stakes. Under the system, one company acquires shares in another, which in turn buys stakes in a separate business. This then procures holdings in the company that made the original investment. The stock ownership structure has been blamed for allowing a handful of people with small stakes in companies to control the decision-making process of all subsidiaries.
Many of South Korea's largest conglomerates are controlled by shareholders that own less that 5 percent of all stocks issued.
The official said no objections have been raised on this issue because the arrangement has been used to circumvent the current ban on cross shareholding by affiliates in the top 59 business groups with assets exceeding 2 trillion won.
Han, however, said details had to be ironed out on existing intra-affiliate holdings because of the repercussions this could have on ownership and control of numerous companies. About 11 family-owned conglomerates will be affected. These include Samsung, Hyundai Motor Co., SK, Lotte, Hanwha, Doosan, Dongbu, Hyundai, Daelim, Hanjin and Hyundai Heavy Industries Co.
"Because of the complications involved, no agreement was reached on this issue during a task force meeting of working-level officials that was concluded last month," he said.
Experts that took part in the taskforce meetings were split between those calling for a limit on voting rights that would nullify the arrangement, and those who want to nudge businesses to voluntarily end this kind of shareholding by offering incentives, including tax breaks.
They said there have been proposals to offer a grace period of three to five years for companies that fear they will lose control of their affiliates.
The FTC also said the government will encourage non-circular investments that are made to enhance positive business synergies.
Business investments lead to more jobs and fuel economic growth.
The issue has become more urgent as South Korea must come up with a measure to follow up on the investment-ceiling rule that expires at the end of this year.
South Korea's fair trade law bans subsidiaries of business groups with assets of 2 trillion won (US$2.11 billion) or more from making equity investments in one another. It also bans companies belonging to the largest 14 business groups with assets exceeding 6 trillion won from purchasing stakes in their affiliates or other firms in excess of 25 percent of their net worth.
The FTC has said the rule is needed to prevent the distortion of conglomerate governance structures, but large businesses have countered that it hinders legitimate investment. The latter view is shared by some government officials in the finance and commerce ministries.
Seoul, Nov. 6 (Yonhap News)
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