Regulation on Equity Investment De Facto to Be Abolished

The Korea Far Trade Commission (KFTC) plans to ease the regulation starting next April, which prohibited the top 30 chaebol companies from investing more than 25 percent of their net assets to their affiliated companies. While the KFTC is to allow the unlimited investment of the top 30 chaebol companies to their affiliated companies, it plans to restrain their voting rights on the excess amount of investment.

The KFTC also decided to change the current criterion of the chaebol regulation, which selects the top 30 chaebol companies based on the total assets, to the new criterion which selects the companies that have `more than 3 trillion won of total assets`.

The KFTC announced yesterday that it would finalize the revision of fair trade law, and submit it to the National Assembly through the consultation with the related ministries and the public hearings.

The KFTC chairperson Lee Nam-Ki said, ``The KFTC decided to revise the regulation on equity investment, which limited the top 30 chaebol companies from investing more than 25 percent of net assets to their affiliated companies, and to allow the investment in excess of 25 percent and the retention of their shares. However, the KFTC plans to deprive these companies of their voting rights on the excess amount of investment.``

Therefore, the top 30 chaebol companies are no longer obliged to sell their stocks equivalent to the excess investment amounting to 23 trillion won (11 trillion won after excluding the approved amount) by next March.

The KFTC also decided to change the criterion of the chaebol regulation. According to the new criterion, the companies with `more than 3 trillion won of total assets` will be subject to the chaebol regulation.

26 chaebol companies, including Hyundai Construction, Hynix Semiconductors and Shinsaegae, which has 3.2 trillion won of total assets, will be subject to the chaebol regulation starting next April.

However, the KFTC decided to maintain the current regulation on cross shareholdings and mutual debt guarantees, which has regulated the chaebol companies along with the regulation on equity investment, and to consider expanding the regulation to smaller business companies for the mid and long run.

Meanwhile, Jin Nyum, Deputy Prime Minister and Finance and Economy Minister, said at a meeting with reporters that ``the government is examining three plans, including the KFTC`s plan, to ease the regulation on equity investment, and will make the final decision by next week through consultation with the related ministries.``

Park Joong-Hyun sanjuck@donga.com