The South Korean government said Wednesday it will push to ease equity investment ceiling rules for large conglomerates to fuel business activity.
The measures, which were agreed upon by economic ministries and approved by the presidential office, are a compromise aimed at addressing complaints from businesses and the need to push for corporate reform, the Fair Trade Commission (FTC) said.
The proposal will be sent to the National Assembly for deliberation and will become effective after the country's Fair Trade Act has been revised. The government is seeking its passage in February.
The government seeks to replace rules that ban subsidiaries of 59 large business groups with assets of 2 trillion won (US$2.13 billion) from making equity investments and standing surety with other companies in their group. Companies belonging to the 14 largest business groups with assets exceeding 6 trillion won are also prohibited from purchasing stakes in affiliates or other companies that exceed a quarter of their net asset worth. The current equity investment ceiling rules expire at the end of the year.
In the new plan, only key companies with assets exceeding 2 trillion won that belong to a business group whose total worth surpasses 10 trillion won would face investment limits. The changes mean 24 companies belonging to Samsung, the Hyundai-Kia Automotive Group, SK, Lotte, Hanwha, Doosan, and Kumho Asiana will be affected by equity investment ceiling rules. The old rules affected more than 340 companies.
The revised investment caps will allow core companies to set up new businesses as long as the amount of money spent is under 40 percent of their net worth. Currently there is a 25 percent limit.
The FTC said the new rules set no restrictions on intra-affiliate shareholding arrangements that conglomerates claimed could affect management control over affiliates and expose them to hostile takeovers. The government said those that voluntarily dissolve the cross-shareholding system could receive tax breaks.
In the circular intra-group shareholding structure, one subsidiary of a conglomerate can make equity investments in another affiliate, which in turn invests in a third unit, enabling the owner to control the whole conglomerate with only a small stake. This system has been cited as one of the major hurdles to improving corporate governance.
In addition, the plan seeks to make it easier for conglomerates to become holding companies by lowering the minimum amount of stakes that must be owned by the majority shareholder from 30 percent of issued shares for listed companies to 20 percent.
The holding company arrangement is advocated by some government policymakers because it raises transparency of ownership and enhances management accountability. Conglomerates that have adopted the holding company model are currently exempt from equity investment ceiling rules.
The proposal is very toned-down version of the original plan drawn up by FTC which wanted to introduce a blanket ban on circular intra-group shareholding and bar key affiliates within large conglomerates from purchasing stakes in other companies that exceed a quarter of their overall worth.
This plan had received considerable criticism from large conglomerates that claimed such a move would only make it harder to invest money and start new businesses. Such developments could cause problems for the country's economy, which is showing signs of reduced growth in the second half.
Seoul, Nov. 15 (Yonhap News)
S. Korean gov't proposes easing investment rules for conglomerates |
