Chaebol Investment Barrier to Be Eased

The Korean government announced that it would scrap the shareholding cap for conglomerates, which has been criticized for inhibiting investment of large corporations.

The shareholding cap is a restriction on domestic conglomerates’ share in affiliates not to exceed the level set by the government.

However restrictions still apply, including alternative policies aimed to inhibit conglomerate leaders from controlling dozens of sister companies with small sums of equities.

The regulation is expected to be annulled either in 2007 or 2008.

Related government officials, including Deputy Prime Minister and Minister of Finance and Economy Han Duck-soo, head of the Fair Trade Commission Kwon Oh-seung, and Minister of Industry, Commerce, and Energy Chung Se-kyun met with President Roh Moo-hyun recently to discuss the issue of lifting the cap.

The Ministry of Finance and Economy proposed 2007, while the Fair Trade Commission proposed 2008 as the ideal time to eliminate the equity investment regulation.

A government source stated on April 16, “The purpose of the shareholding cap is to prevent major shareholders from exercising more voting rights than their shares through circulatory shareholding structure and infringing on the rights of other shareholders,” and added that “the issue of breaching into minority stockholders’ rights can be dealt with through alternative solutions.”

The Fair Trade Commission will consult with relevant ministries, research institutes, and the business community to create a “Developed Market Economy Task Force,” and plans to discuss general conglomerate related policies starting from July.

Having introduced the Conglomerate Equity Regulation similar to the shareholding ceiling before Korea, Japan removed the regulation from its system in November 2002.

Predicting that it would be difficult to eliminate the regulation, alternatives were set in which the establishment of or transformation into monopolized structures were prohibited.

Fourteen conglomerates are affected by the restriction this year, including Samsung, Hyundai Motors, SK, LG, Lotte, GS, Hanwha, Doosan, Kumho Asiana, Dongbu, Hyundai, CJ, Daelim, and Hite.

Do-Young Kim nirvana1@donga.com