South Korea lowers hopes for drastic reform of chaebol

Chaebols like Hyundai dominate South Korea's economy, but a reform to address transparency concerns is not on the cards.
Chaebols like Hyundai dominate South Korea's economy, but a reform to address transparency concerns is not on the cards.PHOTO: REUTERS

SEOUL (Reuters) - South Korea's prospective antitrust chief on Thursday (May 18) said there no hurry to unravel the complex and opaque structures behind the powerful family-run conglomerates that dominate Asia's fourth-largest economy.

In a blow to reformers who hoped new liberal President Moon Jae In would take a tough line on "chaebol" business empires, the man Moon nominated on Wednesday to head the Korea Fair Trade Commission (KFTC) said sweeping change was not on the cards.

"Chaebol reform is never about destroying or disbanding chaebols. Chaebol reform is about helping and inducing them to grow into important assets in the South Korean economy through rules," Kim Sang Jo said at a news conference.

Unravelling cross-shareholdings among group affiliates that cement family control was "not an urgent matter", as big businesses like Lotte Group had made progress in addressing the issue themselves, he said.

South Korea's top family-run conglomerates include technology giant Samsung Group, Hyundai Motor Group, SK Group and Lotte Group.

Their lack of transparency has long worried investors but the issue came to a head in February with the arrest of Samsung Group chief Lee Jae Yong over his alleged role in a corruption scandal that rocked the political and business establishment.

Prosecutors allege Lee, the 48-year-old scion of the country's richest family, bribed a close friend of then-President Park Geun Hye to gain government favours related to leadership succession at the conglomerate. He denies any wrongdoing.

Park's subsequent ouster and Moon's election in May raised hopes among some investors that the new liberal president would crack down on the chaebol, but such expectations were lowered with Kim's comments on Thursday.

"His news conference shows there is little commitment from the government to reform chaebols," said Park Sang In, a professor at Seoul National University.

Kim, who was known as "chaebol sniper" for his shareholder activist campaigns against the business empires, is unopposed for the role of KFTC chief and his appointment is seen as a matter of course.

HYUNDAI HOPES

Kim said seven conglomerates currently had 90 cross-shareholding ties, sharply down from about 98,000 chains at 14 companies five years ago.

Hyundai Motor Group is the only major company where the complex structure was key to management control and succession, he said, prompting some investors to buy the stock on expectation of leadership changes.

"Hyundai Motor Group chief is 80 years old, and the market expectation is that the succession may be imminent," Lee Sang Hyun, an analyst at IBK Investment & Securities. "But that is just speculation and may be short-lived."

Hyundai Motor Co shares jumped 4.7 per cent to their highest level in nearly two months, while Kia Motors and Hyundai Mobis also firmed up more than 3 per cent in the broader marekt that was down 0.3 per cent as of 0611 GMT (2:11pm Singapore time).