Eight Business Groups Including LG and Hanjin to be Exempt from limit system on the amount of investment

Eight business groups including LG, Hanjin and Shinsegae will be freed from restrictions on the total amount of shareholdings of other companies starting in April of this year.

However, three groups including Samsung which where temporarily released from this restriction with debt ratio at less than 100 percent, will be restricted under this rule again.

Groups subject to this limit system on the amount of investment are to be “business groups with over five trillion won in assets,” which is the same benchmark used currently. ▶ see SectionA3 for related article

The Fair Trade Commission (FTC) announced this legislation on Monday, January 24 as part of the revised Fair Trade Act enforcement decree.

According to the revised decree, the assets of the business groups under the restriction will be kept at five trillion won (also cited on January 19, Section A1), but a concrete “graduation standard” has been made and the range for accepting exceptions has been expanded.

To be eligible for “graduation,” the cross-shareholdings between affiliates must be less than three increments and the number of affiliates must be five or under, the group must have a well managed internal checking system with the introduction of a cumulative voting system, and the share of the controlling shareholder must be relatively high.

However, with the abolishment of the previous graduation standard for the debt ratio in the combined financial statement in the revised decree, groups including Samsung are to be included in the restriction again.

FTC expects that following these standards, the current 17 groups subject to this regulation will drop to 12 in April.

Since the debt ratio graduation standard is abolished in the revised decree, three groups: Samsung, Lotte and Korea Electric Power Corporation will be included again in the pool of eligible groups; however, eight groups: LG, Hanjin, Korea National Housing Corporation, Korea Land Corporation, Hyundai Heavy Industries, Korea Gas Corporation, Shinsegae and LG Cable will be exempt from the restriction.

Financial circles are judging that the revised Fair Trade Act enforcement decree has partially relieved the restriction on the total amount for shareholdings of other companies, but is still lacking.

Chi-Young Shin Keuk-In Bae higgledy@donga.com bae2150@donga.com