Fair Trade Commission Investigates 24 Cases of Illegality in Voting Rights Exercise by Large Financial Corporations

[Asia Economy Sejong=Reporter Kwon Haeyoung] The Fair Trade Commission (FTC) is investigating the legality of 24 cases in which financial and insurance companies belonging to large business groups subject to mutual investment restrictions (Sangchuljipdan) with assets exceeding 10 trillion won exercised voting rights over non-financial affiliates.

According to the FTC on the 2nd, from May last year to April this year, an investigation into the voting rights exercised by financial and insurance companies belonging to 12 out of 47 Sangchuljipdan that invested in non-financial affiliates revealed that 13 financial and insurance companies from 6 Sangchuljipdan exercised voting rights a total of 89 times at shareholders' meetings of 17 non-financial affiliates.

In principle, financial and insurance companies within Sangchuljipdan are not allowed to exercise voting rights over domestic affiliate stocks, with only some exceptions permitted. This is to reduce market competition distortion and the side effects of economic power concentration caused by large industrial capital groups expanding non-financial affiliates using financial company customer funds.

Among the 89 instances of voting rights exercised, 41 were lawful under the exceptions stipulated in the Fair Trade Act, and 24 were exercised under special provisions of other laws such as the Capital Markets Act and the Agricultural Cooperative Act. The FTC is currently reviewing whether the remaining 24 cases were exercised lawfully.

The FTC also conducted its first investigation this year into the actual conditions of TRS (Total Return Swaps) and capital replenishment agreements, which have been raised as potential means to circumvent debt guarantee regulations. The scale of TRS transactions between affiliates within Sangchuljipdan was recorded at 3.5333 trillion won (20 cases) from January 2018 to June this year. This accounts for 57.9% (37.0% by number of cases) of the total TRS transactions (6.107 trillion won, 54 cases), including transactions with non-affiliates. TRS is a derivative product involving the exchange of total returns generated from underlying asset transactions; if affiliate A enters into a TRS based on bonds issued by A with a financial institution, and affiliate B signs the TRS, it creates an effect similar to a debt guarantee.

Regarding capital replenishment agreements, where a third party agrees to supplement funds through investment or loans if the debtor's credit repayment ability decreases, 100 companies belonging to 31 Sangchuljipdan entered into 1,148 transactions during the same period. Among these, 242 transactions (21.1%) were between affiliates, and 906 transactions (78.9%) were with non-affiliates. Notably, 738 transactions (64.3%) were capital replenishment agreements between construction companies belonging to Sangchuljipdan and non-affiliates.

Min Hyeyoung, head of the Corporate Group Policy Division at the FTC, said, "It is not illegal to conduct (TRS) transactions for their original purpose," but added, "However, they could be used for illegal purposes, so we need to study further to determine in which cases this happens and whether to approach problematic cases institutionally (through improvements) or as individual incidents."

As of May 1 this year, the amount of debt guarantees by Sangchuljipdan was 1.115 trillion won, a 3.7% decrease compared to the previous year. Among this, the restricted debt guarantee amount that must be resolved within two years of Sangchuljipdan designation was 964.1 billion won (8 groups including Hoban Construction), down 11.6% from a year earlier.

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