Half of Food Companies Are Dual-Listed... Shields for Owner Control [K-Food G Report] ⑥

Korea Discount Deepens as Dual Listings Spark Shareholder Conflicts
Internal Transactions Swell Holding Company Profits Despite Professional Management

Editor's NoteThe global "K-Food" boom has elevated the status of Korean food companies, but their outdated corporate governance structures remain largely unchanged. While global brand credibility continues to rise, critics argue that management systems are still stuck in old practices, with insufficient efforts to regain investor trust. In line with the amended Commercial Act, Asia Economy has assessed the governance of the top 20 listed food companies by market capitalization. Over five installments, we will analyze the results of our quantitative and qualitative review of 10 key indicators-including dividend policy, treasury stock policy, dual listing structure, and board composition-and discuss areas for improvement.

More than half of Korea's major listed food and beverage companies are dual-listed, with both the holding company and the operating company publicly traded. Dual listings have long been cited as a key factor behind the "Korea Discount"-the undervaluation of Korean equities-because the profits generated by a company are "double counted" by both the parent and the subsidiary, weighing down share prices.

On August 13, Asia Economy conducted a quantitative and qualitative evaluation of 10 governance indicators for the top 20 food and beverage companies by market capitalization. The results showed that 11 companies were dual-listed, far exceeding the 18% dual-listing rate for the overall Korean stock market.

In particular, three companies-Samyang (Samyang Holdings), Harim (Harim Holdings), and HiteJinro (HiteJinro Holdings)-were found to have their holding companies listed separately, without generating significant cash flow apart from dividends received from their operating subsidiaries.

Korea Discount Driven by Shareholder Conflicts of Interest

HiteJinro and HiteJinro Holdings, for example, are separately listed, but the actual corporate value is concentrated in HiteJinro, making this a textbook "holding company-operating company" structure. The largest shareholder of HiteJinro is its holding company, HiteJinro Holdings, which owns a 50.86% stake. HiteJinro Holdings is, in turn, majority-owned by Seoyoung ENT (27.7%)-which is almost entirely controlled by the owner family-and Chairman Park Moondeok (29.5%). Seoyoung ENT itself is 99% owned by the controlling family.

HiteJinro Holdings receives 0.3% of HiteJinro's sales as a corporate image (CI) trademark usage fee, and 0.08% from HiteJinro Beverage. Additionally, it has a contract with HiteJinro for investor relations (IR) consulting, receiving related expenses plus an additional 5%. This structure ensures that brand royalties and service fees are regularly funneled to the holding company.

In dual-listed structures where both the holding company and the key affiliate are listed, not only dividends but also brand royalties (trademark royalties) and various internal transactions often result in the subsidiary's profits being transferred to the parent. This can lead to conflicts of interest, as profits that should go to minority shareholders of the subsidiary are instead shifted to the parent company. While advanced markets such as the United States, France, and Germany prohibit dual listings to protect minority shareholders' rights, Korean food companies continue to use dual listings as an easy way to secure funds without relinquishing control, fueling criticism of the "Korea Discount."

Han Yoojeong, a researcher at Hanwha Investment & Securities, stated, "Major food and beverage companies are subject to a discount in the stock market due to dual listings, closed equity structures, and passive shareholder returns. Most operate under a holding company-operating company structure, with owner families exercising indirect control. As a result, dual listings, internal transactions, and low levels of information disclosure have led to conservative market evaluations."

As a result, dual-listed companies like HiteJinro tend to have highly volatile or persistently low dividend payout ratios, making it difficult for minority shareholders to predict their returns. In contrast, major shareholders can increase their control over multiple affiliates with only a small stake in the holding company, while also benefiting from a larger group market capitalization and easier access to funding thanks to dual listings.

Internal Transactions as High as 90%...Professional Management Offers Little Solution

The strengthening of owner control is often achieved by concentrating actual profits and influence through internal transactions. Internal transactions help maintain control over the group and facilitate succession planning.

Owner families use internal transactions to generate profits from affiliates in which they hold relatively small stakes, thereby maintaining and strengthening their overall control of the group. Internal transactions distort the flow of profits and serve as an indirect means of expanding control. Affiliates with high levels of internal transactions are typically those in which the owner family holds a significant stake. For unlisted affiliates, internal transactions can be used to inflate corporate value, which can then be leveraged for fundraising through an IPO or to secure resources for succession.

The company with the highest proportion of internal transactions was Pulmuone, at 92.50%. Samyang Foods ranked second at 47.70%, followed by Dongwon Industries at 29.20%.

Of Pulmuone's standalone sales of 120.3 billion KRW last year, 111.3 billion KRW came from related-party transactions, making the internal transaction ratio a staggering 92.5%. Pulmuone operates both manufacturing and distribution subsidiaries, and as the holding company, it profits by buying and selling goods within the group. Since implementing its "One Pulmuone" strategy in 2017, the company has intensified brand and management efficiency, which has led to more internal collaboration in product development and distribution.

Pulmuone is currently run by professional managers, but Nam Seungwoo, the founder and standing advisor of the Pulmuone Foundation, remains the largest shareholder with a 56.8% stake. The unique business structure and distribution channel strategy of Pulmuone result in more than half of dividends being directed to Advisor Nam.

Since adopting a holding company structure, Samyang Foods has reduced transactions with unlisted affiliates directly owned by the controlling family, such as Samyang Frozen Foods, but analysts say that the structure for private benefit extraction has not been fully resolved.