Group Control with 3.5% Ownership by Family Heads... Hanwha, Amore, etc. Commitments to Heads and Relatives

Fair Trade Commission Publishes 'Stock Ownership Status of Publicly Disclosed Business Groups'

Last year, it was found that the families of domestic conglomerate heads held an average of 3.5% of the shares in their affiliates, thereby controlling the entire group. The trend of expanding control through public interest corporations and financial insurance company investments also strengthened.

Seventeen companies, including SK, Hyundai Motor, POSCO, Hanwha, Shinsegae, and Kakao, signed stock payment agreements such as Restricted Stock Units (RSU).

On the 1st, the Korea Fair Trade Commission announced the "2024 Stock Ownership Status of Publicly Disclosed Business Groups," which contains these details.

First Disclosure of Stock Payment Agreements... RSUs Most Common with 147 Cases

The internal shareholding ratio (the proportion of shares held by the same person, relatives, affiliates, non-profit corporations, and executives among the total issued shares of affiliated companies) of 88 publicly disclosed business groups with assets exceeding 5 trillion KRW was 61.4%, a 0.3 percentage point decrease from last year (61.7%) but still above 60%.

Among these, the internal shareholding ratio of 78 groups with a head was 61.1%, similar to last year's 61.2%. Of this, the family of the head held 3.5%, and affiliates held 54.9% of the shares. The phenomenon of the head's family controlling the entire group with a small shareholding continues.

Seventeen publicly disclosed business groups signed stock payment agreements to provide shares to the head (same person), relatives, and executives as performance rewards or for other purposes. This accounts for about 19.3% of all publicly disclosed business groups. Specifically, these include SK, Hyundai Motor, POSCO, Hanwha, Shinsegae, KT, Kakao, LS, Doosan, Naver, SeAH, EcoPro, Dunamu, Amorepacific, Krafton, Daishin Securities, and Hansol.

The total number of agreements was 417, with RSUs, which grant shares upon meeting certain conditions, being the most common at 147 cases.

Stock grants, which typically provide short-term performance bonuses in shares, accounted for 140 cases, and Performance Stock Units (PSU), which pay a certain percentage of salary in shares and adjust the final payment based on performance targets, accounted for 116 cases.

SK had the highest number of contract cases at 231, followed by Doosan (36 cases) and EcoPro (27 cases). The conditions for stock payment varied by company, including "no intentional major losses or liabilities for 10 years" (Hanwha), "continuous employment for a certain period" (Shinsegae, Kakao, EcoPro, Doosan, etc.), and "initial public offering" (SK).

Many agreements also determined the final stock payment amount based on performance, such as "stock price fluctuation rate" (SK, Naver).

Seven large business groups, including Hanwha, LS, Doosan, EcoPro, Amorepacific, Daishin Securities, and Hansol, signed stock payment agreements with the head and relatives. Among them, Hanwha and EcoPro signed agreements granting RSUs to the second generation of the head. This is the first time the status of stock payment transaction agreements by large corporations has been disclosed.

Cases of indirect affiliate investments using public interest corporations, overseas affiliates, and financial insurance companies also increased. The number of affiliates invested in by public interest corporations remained the same at 138, but the average shareholding ratio increased by 0.05 percentage points to 1.15% from 1.10% the previous year.

Additionally, among 49 financial-industrial conglomerates with a head, 28 groups' 104 financial and insurance companies invested in 324 affiliates (246 financial, 78 non-financial), with the average shareholding ratio in invested affiliates rising by 1.6 percentage points to 45.3% from 43.7% the previous year.

Forty-nine overseas affiliates where the head's family holds 20% or more shares were identified. Among these, nine overseas affiliates from four groups?Lotte, Janggeum Shipping, Kolon, and OK Financial Group?directly or indirectly invested in domestic affiliates.

39 Additional Companies Subject to Private Interest Appropriation Regulations

Four groups held circular shareholding loops: Hyundai Motor (4 loops), Taekwang (2 loops), KG (5 loops), and Boseong (1 loop), totaling 12 circular shareholding loops.

The number of groups with circular shareholding remained the same as last year, while the number of circular shareholding loops increased by 2 (20.0%) from 10 to 12.

The Fair Trade Commission explained, "KG added 2 circular shareholding loops compared to last year (3 loops), and there were no changes in circular shareholding loops for other business groups."

Since the implementation of the circular shareholding prohibition system in July 2014, the number of groups with circular shareholding has decreased by 10, and the number of circular shareholding loops has decreased by 471 (97.5%).

Among the 88 publicly disclosed business groups, Taekwang, KG, and Boseong had a total of 4 mutual shareholdings. The Fair Trade Commission stated, "The number of groups with mutual shareholdings (3) and the number of mutual shareholdings (4) remain the same as last year, and none of these three groups qualify as mutual shareholding restricted business groups this year."

The number of companies subject to private interest appropriation regulations increased by 39 (4.3%) to 939 companies belonging to 78 groups, compared to last year (72 groups, 900 companies).

With the enforcement of the amended Fair Trade Act at the end of 2021, the regulatory scope changed from companies where the head's family holds 30% or more shares (20% for unlisted companies) to companies where the head's family holds 20% or more shares and subsidiaries where the company holds more than 50% shares, thereby including companies previously in regulatory blind spots.

The average shareholding ratio of the head's family in companies subject to private interest appropriation regulations was 16.73%, down 0.24 percentage points from 16.97% (900 companies) last year. Groups with a high proportion of companies subject to private interest appropriation regulations include HYBE (93.3%), Daebang Construction (90.5%), Sono International (82.6%), Nongshim (78.3%), and Youngone (76.0%), in that order.