[Their Own Wealth Succession] The Suspicious Internal Transactions of 'Byeoksan LTC Enterprise,' the Lever for Property Inheritance

Beksan Group ①
Internal Transaction Sales Share Exceeds 97%... Doubts About Self-Sustainability
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[Asia Economy Reporter Kwangho Lee] Byucksan Group traces its origins to Dongyang Mulsan, founded in 1951 by the late honorary chairman Kim Indeuk. The name Byucksan has been used since 1983. Although it was once ranked among the top 30 conglomerates, its business declined following the 1997 Asian financial crisis and the 2008 global financial crisis. After Byucksan Construction went bankrupt in 2010, the group exited the construction industry. Currently, its main focus is on building materials such as refractory insulation and interior materials.

The parent company of Byucksan Group is Byucksan. It operates six factories located in Iksan, Yeoju, Hwaseong, Yeongdong, Eumseong, and Icheon, producing various types of insulation materials, ceiling materials, and exterior materials. Byucksan Group includes the parent company Byucksan, as well as Hatz (ventilation systems and kitchen appliances), Inhee (building materials distribution), Byucksan Paint (paint manufacturing), Byucksan LTC Enterprise (wholesale of building materials, hardware, and heating devices), and Inju Logis (logistics), among others.

Byucksan oversees a total of nine affiliates, including its core subsidiaries Hatz and Byucksan Paint. Other subsidiaries under Byucksan include Iverty (information and communications), Dasol UR (waste recycling), and INHEE VIETNAM Co., Ltd (real estate development). Among these, Hatz is the only publicly listed company; the remaining eight are privately held.

The largest shareholder of Byucksan, which functions as a holding company, is not Chairman Kim Hee-cheol but Byucksan’s unlisted affiliate 'Byucksan LTC Enterprise,' which holds 29.30% of Byucksan’s shares. Byucksan LTC Enterprise primarily operates in the wholesale of building materials and heating devices.

The main shareholders of Byucksan LTC Enterprise are Chairman Kim’s eldest son, Kim Seongsik, CEO of Byucksan, and his younger brother, Kim Chansik, Vice President of Byucksan. Additionally, Kim Seongsik’s three children?Juri, Taein, and Taehyun?along with two other members of the Byucksan family’s third and fourth generations, each hold 20% of the shares. This makes it a 100% family-owned private company. In the business community, it is believed that Chairman Kim is using Byucksan LTC Enterprise as a vehicle to pass the group on to his eldest son, Kim Seongsik.

The reason Byucksan LTC Enterprise is considered a leverage point for succession within Byucksan Group lies in its internal transactions. Since its establishment in 2010, it has concentrated on securing orders from group affiliates. By its third year in 2013, the proportion of internal transactions reached 94.18% (total sales of 34.3 billion KRW; internal transactions of 32.3 billion KRW), exceeding 90%.

Despite controversy, Byucksan maintained an internal transaction ratio in the 90% range. The internal transaction ratios were 96.22% (34.4 billion KRW total sales; 33.1 billion KRW internal transactions) in 2014, 95.39% (31.3 billion KRW; 29.9 billion KRW) in 2015, 94.23% (33.9 billion KRW; 32.0 billion KRW) in 2016, 90.02% (36.0 billion KRW; 32.4 billion KRW) in 2017, 97.22% (33.4 billion KRW; 32.5 billion KRW) in 2018, 93.69% (34.1 billion KRW; 31.9 billion KRW) in 2019, and 96.69% (34.8 billion KRW; 33.7 billion KRW) in 2020.

The peak was reached most recently in 2021. Out of total sales of 38 billion KRW, 97.44%, or 37.1 billion KRW, came from transactions with group affiliates. Notably, transactions with Byucksan Paint and Hatz accounted for a significant portion.

Of course, a high internal transaction ratio does not necessarily indicate wrongdoing. If the transactions were essential and conducted at appropriate prices, there is no reason for criticism. However, as Byucksan’s internal transactions continued, authorities took action. In September last year, the Seoul Regional Tax Office’s Investigation Division 4 deployed personnel to Byucksan Group’s headquarters to examine tax-related documents. Unlike Investigation Divisions 1, 2, and 3, Division 4 specializes in non-regular special tax audits targeting companies, focusing on allegations such as tax evasion or slush fund creation. It is known as the 'grim reaper of the business world.'

The business community believes that Investigation Division 4 is focusing on Byucksan Group’s internal transactions. There is strong speculation that they are investigating signs of wealth inheritance through internal transactions. The Seoul Regional Tax Office is expected to impose additional taxes such as corporate tax and value-added tax. Regarding this, a Byucksan Group official stated, “The tax audit by the Seoul Regional Tax Office’s Investigation Division 4 has concluded,” adding, “Although it was a special tax audit, it was not significantly different from a regular tax audit.” However, they declined to comment on any additional tax assessments.