General Holding Companies' CVCs 13 Firms... 170 Billion KRW New Investment

Fair Trade Commission Discloses Status of Holding Companies and CVCs

[Image source=Yonhap News]

It has been reported that 13 corporate venture capitals (CVCs) have been established within two years since the partial relaxation of the financial-industrial separation regulation allowing general holding companies to own CVCs. However, due to factors such as economic downturn, the amount of new investments by CVCs has decreased compared to the previous year.

On the 26th, the Korea Fair Trade Commission (KFTC) announced the results of the "2024 Analysis of CVCs Affiliated with General Holding Companies." CVCs are venture capital firms operated as subsidiaries by large corporations to invest in venture companies. The government has allowed holding companies to own CVCs on a limited basis since January 2022 to supply private liquidity to the venture ecosystem.

As of the end of last year, there were 13 CVCs affiliated with general holding companies. Compared to one year ago, the first year of the law's enforcement, four new CVCs were established, and one was excluded. Among the 13 CVCs, 10 were newly established and registered after the legal amendment. Two companies converted into holding companies while already owning CVCs, and one company was incorporated internally from outside the holding company system.

Among the 13 CVCs, 10 operated a total of 63 investment associations, all of which were newly established last year. The total committed capital of the newly established investment associations was 363.7 billion KRW, a 34.8% increase from the previous year (269.8 billion KRW). The internal investment ratio was 79.1%.

The KFTC interpreted this as "retained funds within the holding company system flowing into the venture investment market through the CVC system," indicating that "the CVC system is settling smoothly in the market."

Among the CVCs, nine companies made new investments totaling 176.4 billion KRW in 101 companies last year. Although the new investment amount decreased from 211.8 billion KRW the previous year, the average investment amount per deal increased from 1.24 billion KRW to 1.32 billion KRW.

Among the investment target companies, 62.3% were early- to mid-stage companies with less than seven years of operation. By industry, secondary batteries and other electrical, mechanical, and equipment sectors accounted for 27.8%, information and communication technology (ICT) services such as artificial intelligence (AI) and payment services accounted for 21.6%, and bio and medical sectors accounted for 13.0%.

As of the end of last year, there were 174 holding companies. The total number of subsidiaries, grand-subsidiaries, and great-grand-subsidiaries affiliated with holding companies was 2,462, with an average of 14.2 affiliated companies controlled per holding company.

Among the 88 business groups designated as publicly disclosed corporate groups (large business groups) this year, 46 groups owned one or more holding companies within their corporate groups.

There were 43 groups that restructured their governance into a holding company system. Hyundai Department Store, OCI, and Dongkuk Steel newly converted to a holding company system last year, and Wonik and Paradise, which were already under a holding company system, were newly designated as large business groups in 2024.

The average debt ratio of all holding companies was 43.2%. The average shareholding ratios of general holding companies and subsidiaries in their subsidiaries and grand-subsidiaries were 69.0% and 83.3%, respectively, all meeting the standards under the Fair Trade Act (debt ratio 200%, 30% for listed companies, 50% for unlisted companies).

The KFTC stated, "We plan to closely monitor whether holding companies and the CVC system are abused as means to expand control or for private gain, and to evade regulations or violate laws," adding, "We will also promote regulatory rationalization by supplementing institutional deficiencies identified during the operation of the system."