Conglomerates Can Now Become Holding Companies More Easily

In order to encourage the transformation of Korean conglomerates to the status of that of holding companies, the government and the ruling Millennium Democratic Party (MDP) announced that they would give another year to fulfill the mandatory adjustment of corporate debt to equity ratios.

Both sides also agreed to mandate a company, merging with a firm having assets or revenue of over 2 trillion won, to report stock acquisition to the authorities in advance.

The government, yesterday, called a consultation meeting with various political parties, in which the reform bill on fair trade laws was to be presented to the legislative body by the end of the year. Among the participants were Jung Sae-gyun, policy coordinator in the MDP, and Kang Chul-gyu, chairman of the Fair Trade Commission (FTC).

According to the reform bill, a holding company must reduce the level of liabilities to less than 100% of its assets within 2 years, a year extension from before.

The extension will be applicable to many cases such as stock swapping and transition, including reduction of capital for holding companies, etc.

The suspension period will be newly applied for an affiliate company to sell off its stocks.

When a holding company wants to acquire a non-listed joint business, the amount of equity the holding company has to secure, will decrease from the current 50% level. This will be welcome news to companies, such as LG Caltex, which was in trouble for shortages in equity possession. The revised measure will require a company to report stock acquisition in advance when acquiring a third company.

Under the new regulations, it will be easier for a company to reverse the already-finalized deal for stock acquisition. Concurrently, a system for customer damage claims will also be improved. The FTC confirmation will no longer be needed before claiming any damages. At the same time, a customer can expect compensation to some extent even if he or she cannot prove the exact amount of the losses.

Ki-Jeong Ko koh@donga.com