Holding transition price dear for Korean conglomerates

The cost for South Korea¡¯s family-run business empires to transform into a holding structure, which has been in vogue among Korean chaebols because of its simpler ownership structure and better representation to investors, may turn out to be astronomical.

Business conglomerates are expected to spend a combined 13.3 trillion won ($11.8 billion) to meet stricter holding company requirements under the new liberal government.

A joint research released by Maeil Business Newspaper and Daishin Economic Research Institute on Wednesday estimated that 31 companies may have to pay a collective 13.3 trillion won if the government toughens standards for holding entities as warned by liberal President Moon Jae-in since he took office in May. The study reviewed 29 holding companies whose stake in each subsidiary is lower than 30 percent as of August 30. Also on the list were Lotte Group and Hyundai Heavy Industries Group, both of which have embarked on the process of transitioning to a holding structure this year.

The research comes as the Korea Fair Trade Commission (KFTC) has proposed a revision to the National Assembly to increase a holding company¡¯s required stake in subsidiaries. The proposal calls for a holding company to raise its stake from 20 percent to 30 percent in a listed subsidiary and from 40 percent to 50 percent in an unlisted one. The revision, which requires parliament¡¯s approval, will be reviewed at the regular session this month.

Since 2004, SK Group has already plowed nearly 7 trillion won into its subsidiaries to meet the current 20 percent requirement. With that money, the group could have added more lucrative businesses like its chipmaking unit SK Hynix Inc., which it acquired for 3.37 trillion won in 2011. If the proposal is passed by the assembly, the conglomerate would need to cough up additional 6.17 trillion won to raise its equity stake in SK Hynix and SK Telecom Co. by 9.9 percentage points and 4.8 percentage points, respectively.

The tab would be over 1 trillion won for other major groups, costing Lotte 2.20 trillion won, Hyundai Heavy Industries 1.71 trillion won and Celltrion 1.45 trillion won, according to the study. Some companies, including Chong Kun Dang Pharmaceutical, Korea Kolmar, Hansol and Hankook Tire Group, whose cash hoard comes below 1 trillion won, may not be able to afford the additional costs and would have to ditch the plan.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]