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Finance Minister Kwon O-kyu at a Parliamentary hearing
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Conglomerates allowed to practice circular investment: sources
The South Korean government is expected to introduce a toned-down restriction on circular investment among the nation’s large conglomerates and their subsidiaries, sources said. On October 14, Finance Minister Kwon O-kyu, Fair Trade Commissioner Chief Kwon Oh-seung, and Commerce Minister Chung Sye-kyun met to discuss the government’s final stance on the issue, and came up with a regulation weaker in tone than the one previously proposed. The FTC has wanted to introduce a tougher ban on circular shareholding among the subsidiaries of large firms, as well as maintain the current cap on equity investment by South Korea’s conglomerates. Reflecting criticism from South Korea’s large firms, which have called for eased regulations on their business activities, the plan may not include restrictions on circular investment, as originally thought, the sources said. Circular investment involves a chain of stock buying that links through a firm’s subsidiaries until the final stock purchase is a share of the original firm. This practice tightens a firm’s grip on subsidiaries as well as fortifies its market power. The proposal also may lift the equity investment cap from the current 25 percent of the smaller company’s value to 30 or 40 percent; the ruling Uri Party has insisted on such a move, citing the need to spur economic growth. Equity investment involves the buying of shares in a smaller company with the anticipation of reselling them for profit."A majority of our party members want to lift the equity investment cap by the end of this year," a Uri Party official said. The toned-down version of the plan is in line with Finance Minister Kwon’s remarks at a parliamentary session on November 13: "I believe that the FTC’s proposal would make it difficult for local conglomerates to implement large-scale investment and defend themselves from hostile takeover bids." Twenty-four companies from seven of South Korea’s largest business groups are expected to be affected by the government’s decision, or the Samsung, Hyundai, SK, Lotte, Hanhwa, Kumho Asiana, and GS groups. The plan is subject to review by the ruling Uri Party before being discussed at the National Assembly. The government’s official proposal is expected to be announced as early as November 15.
