Internal trading higher for conglomerates with high heir stakes

2017.09.21 16:14:14 | 2017.09.21 16:31:31

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South Korean corporations where heirs hold a high stake have allowed more internal transactions among affiliates, according to the country’s antitrust watchdog.

A study released by Fair Trade Commission (FTC) on Thursday showed that internal trading among affiliates was more prevalent in conglomerates with an owner than those without. The practice was also more pronounced in non-listed firms than listed ones.

The study was based on 2016 transactions of goods and services of 27 major companies whose assets exceeded 10 trillion won ($8.83 billion) as of May this year. Total internal trading volume amounted to 152.5 trillion won, down 7.1 trillion won from the previous year as the number of companies subject to the FTC surveillance was down to 27 from 47 according to the adjustment in the asset criteria to 10 trillion won from 5 trillion won.

Inter-affiliate deals accounted for 12.2 percent of all transactions, up 0.5 percentage point on year as smaller companies, which tend to have fewer inside deals, were excluded from the study.

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The value of internal trading of top 10 conglomerates with owners - including Samsung, Hyundai Motor, SK, LG, Lotte, GS, Hanwha, Hyundai Heavy Industries, Shinsegae and Doosan - was up 0.5 percent to 122.3 trillion won.

Hyundai Motor Group had the largest inter-affiliate deals worth 30.3 trillion won, followed by SK 29.4 trillion won and Samsung 21.1 trillion won. The share of such deals was highest for SK, which accounted for 23.3 percent, trailed by Posco at 19 percent and Hyundai Motor at 17.8 percent.

The concentration of inter-affiliate deals in the auto, petrochemical and electronics businesses was largely due to the companies’ vertically integrated production system, according to industry experts. The top five conglomerates commanded a share of 71.6 percent out of all internal transactions.

Business groups in which owner families held a high stake were more prone to engage in internal trading, especially if second-generation heirs owned a high stake in the firm, suggesting that wealth is being passed down by funneling work to the heir-owned companies.

Internal transactions for companies in which an heir held more than a 20 percent stake accounted for 11.4 percent. But this figure shot up to 66.0 percent when the heirs held a full stake, up from the previous year’s 59.4 percent.

The percentage of inter-affiliate trading among companies in which owner families owned over a 20 percent stake has been rising for the past three years, from 7.6 percent in 2014 to 9.4 percent last year.

By Seok Min-soo

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