Korean corporations turn more active in spin-off this year in econ downturn

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South Korean corporations have turned more active in spinning off their business units as part of preemptive restructuring or fund-raising efforts amid growing recession fears, with the number of spinoffs this year hitting a 12-year high, the similar level seen in the global financial meltdown.

According to Financial Supervisory Service (FSC) on Sunday, 13 companies have announced spin-offs so far this year, which is the highest since 2010 when 14 corporations separated business units mainly to transform into holding companies. This is also more than four times higher than last year with three.

Especially companies have become more active in demerging their subsidiaries since September when the country’s money market started showing signs of contraction, with eight spinoffs.

There are two methods in corporate divestures - spin-offs and split-offs. Existing shareholders of a parent company receive shares of a separated company on a pro rata basis during a spin-off that is generally for business separation and holding company transformation. But the parent company owns a full stake in the separated company after a split-off.

Corporations have turned more aggressive in spinning off this year as part of their pre-emptive restructuring or efforts to bump up liquidity amid growing economic uncertainties, possibly another liquidity crisis, said Yang Il-woo, a researcher at Samsung Securities.

Market analysts also noted that companies seeking to enhance control hastily demerged businesses to postpone capital gain and corporate taxes on shares acquired through holding company transformation until stock divesture.

Others also suspected that more businesses choose to spin off business units to avoid corporate tax burden. The top rate in corporate taxes rose to 25 percent from 22 percent under the previous liberal Moon Jae-in administration.