Holding Company Guidelines Becoming Easier

The Fair Trade Commission (FTC) has decided to push ahead with plans to extend the grace period for changing status into holding companies and restrictively allow a subsidiary’s affiliates to secure the domestic subsidiary’s shares.

The move came after looking into the fact that current requirements for the establishment of holding companies is so complicated that it pressures companies, further becoming a stumbling block to market reform.

“We are actively reviewing plans to ease requirements for establishing holding companies in order to encourage companies to improve their corporate governance,” said authorities from the FTC on March 16.

What the corporate watchdog has in mind is to extend the grace period for changing status to that of a holding company, reform requirements for subsidiaries’ to purchase other companies’ shares at home, and restrictively allow a subsidiary’s affiliates to possess shares of other subsidiaries at home.

Currently, subsidiaries are not allowed to purchase other subsidiaries’ shares in the country for a 2-year grace period since it being incorporated into a holding company. However, they can possess shares of other companies to sell, maintain and repair products and to provide raw material.

The FTC is also giving consideration to the extension of the grace period for a subsidiary to invest in other companies and amending clauses of exception to ban such investment.

In addition, a subsidiary’s affiliates will be allowed to purchase other subsidiaries’ shares at home after a certain grace period since the launch of the holding company, which had been completely banned in the past.

The watchdog is also considering flexibly adjusting the exception period, which is two years, with regard to the holding company’s possession of company shares other than those for subsidiaries.

“We will maintain the basic rules such as the ratio of investment in subsidiaries and the debt ratio of the holding company,” an FTC official said.

“Although there is a need to change the management structure of conglomerates into an independent one, it is difficult to change them all at the same time. Therefore, holding companies in which cross-investment is restricted is desirable,” said new FTC Chairman Kang Chul-kyu.

The Korea Fair Trade Association proposed at the end of last year that the FTC ease requirements for establishing holding companies such as excluding the preferred stock in the calculation of subsidiaries’ shares and easing restrictions on shares of joint-partnerships.

Eun-Woo Lee libra@donga.com