Fair Trade Commission Reports Continued Decline in Debt Guarantees by Sangchulje Corporate Groups... "Improving Unreasonable Funding Practices"

'Status of Debt Guarantees by Mutual Investment Restricted Business Groups and Voting Rights Exercise Status of Financial and Insurance Companies'

Debt Guarantees by Mutual Investment Restriction Groups at 86.4 Billion KRW This Year… Down 20.1% YoY
Number of Non-Financial Affiliates and Investment Amounts by Financial and Insurance Companies in Conglomerates with Controlling Shareholders Show Increasing Trend

Changes in Debt Guarantees of Inter-Company Cross-Shareholding Restricted Business Groups Since 1998 (Unit: 100 million KRW)

[Asia Economy Reporter Ju Sang-don] While the amount of debt guarantees by mutual investment restriction corporate groups continues to decline, investments by financial and insurance companies in non-financial affiliates are on the rise.

On the 27th, the Korea Fair Trade Commission (KFTC) analyzed and disclosed the status of debt guarantees by mutual investment restriction corporate groups and the exercise of voting rights by financial and insurance companies.

Corporate groups with assets exceeding 10 trillion KRW are designated as mutual investment restriction corporate groups, where mutual investments among affiliates, new circular investments, and debt guarantees are prohibited, and the exercise of voting rights by affiliated financial and insurance companies is restricted.

According to the KFTC’s analysis, there are four mutual investment restriction corporate groups this year: GS, NongHyup, Doosan, and KCC. As of May 1, the amount of debt guarantees they hold is 86.4 billion KRW. This is a 20.1% (21.7 billion KRW) decrease compared to last year’s 108.1 billion KRW held by seven groups including SK, GS, Doosan, OCI, Kakao, HDC, and KCC.

Specifically, 23 billion KRW (21.3%) of last year’s debt guarantees were resolved, while new debt guarantees increased by 1.3 billion KRW.

The number of non-financial affiliates invested in by financial and insurance companies belonging to conglomerates with controlling shareholders and financial-industrial complex groups (groups holding financial and insurance companies among publicly disclosed corporate groups) increased from 28 in 2016 to 53 in 2020, and the investment amount rose from 290 billion KRW to 620 billion KRW during the same period, showing an increasing trend.

Furthermore, examining the exercise of voting rights by 11 mutual investment restriction corporate groups whose financial and insurance companies have investments in non-financial affiliates, 13 financial and insurance companies belonging to 7 groups exercised voting rights 74 times at shareholders’ meetings of 18 non-financial affiliates. Among these, Hanwha Investment & Securities belonging to Hanwha and MNQ Investment Partners belonging to HDC exercised voting rights a total of 8 times in ways not permitted under the Fair Trade Act. Accordingly, the KFTC issued corrective orders and warnings to them.

A KFTC official stated, "Since the prohibition of debt guarantees among affiliates of mutual investment restriction groups in 1998, the amount of debt guarantees has been steadily decreasing," and evaluated that "the unreasonable financing practice that deepens economic power concentration through guarantees among affiliates is improving."

He added, "Continuous attention is needed regarding indirect affiliate investments and illicit expansion of control using financial and insurance companies," and said, "Going forward, the KFTC plans to annually inspect the exercise of voting rights by financial and insurance companies belonging to mutual investment restriction corporate groups and disclose the results to support and strengthen market monitoring."

This content was produced with the assistance of AI translation services.