South Korea unveils proposed changes to 'chaebol' conglomerate rules

The new rules would apply to companies with assets equivalent to 0.5 per cent of gross domestic product or more, a standard that will be implemented one year after that amount exceeds 10 trillion won (S$12.3 billion).
The new rules would apply to companies with assets equivalent to 0.5 per cent of gross domestic product or more, a standard that will be implemented one year after that amount exceeds 10 trillion won (S$12.3 billion).PHOTO: AFP

SEOUL (BLOOMBERG) - South Korea's antitrust watchdog proposed new rules for family-run conglomerates to make it harder for such businesses to muscle through their agendas at the expense of minority shareholders.

The proposed amendments to existing regulations would require a newly created holding company to own at least 30 per cent in an entity it wants to treat as a listed subsidiary and at least 50 per cent for an unlisted unit, according to a draft the Fair Trade Commission released in Seoul.

The current minimums are 20 per cent for listed and 40 per cent for unlisted.

The steps are expected to be proposed to the National Assembly in November and are in line with campaign promises made by President Moon Jae-in to reform chaebols, companies that account for more than 50 per cent of total market value on the benchmark Kospi index.

The draft amendments to the Monopoly Regulations and Fair Trade Act, first enacted in 1980, reflect changes in the country's economic environment, the regulator said Friday (Aug 24) in a statement.

"Conglomerates will find it harder to make changes like mergers or spin-offs among affiliates without support from the market and shareholders," FTC Chairman Kim Sang-jo said in a briefing held on Friday.

Kim was appointed by a president who himself won office amid a wave of popular support for stemming chaebol power.

The government faces a challenge in reforming conglomerates in ways that could be painful for the sprawling business groups because it must rely on them to promote economic growth, in particular in manufacturing.

Moon has referred to chaebol titans as a "deep rooted evil," but has yet to substantially change the rules they operate under.

"I would give 20 points out of 100, a basic score, to what the Moon government has done for corporate governance reform," said Bruce Lee, chief executive at Seoul-based Zebra Investment Management. "Chaebols would stop doing bad things, but that's not enough for an improvement."

The new rules would apply to companies with assets equivalent to 0.5 per cent of gross domestic product or more, a standard that will be implemented one year after that amount exceeds 10 trillion won (S$12.3 billion).

The same percentage of 2017 GDP would come to about US$7.7 billion (S$10.5 billion), based on International Monetary Fund figures.