Samsung told to reform corporate structure

Korean regulators want to unravel $60bn 'corporate web'

Simon Burns in Taipei, vnunet.com 06 Nov 2006

Korea's top trade regulator has called for the sprawling Samsung Group to tidy up its tangled corporate structure.

The Korean Fair Trade Commission (KFTC) said that the company should cut complex circular cross-holdings that tie its multiple units together, and reorganise itself under three main holding companies, according to reports in local newspapers yesterday.

Samsung chairman Lee Kun-Hee returned last week from an unscheduled six-week foreign trip to face court-appointed investigators who want to question him about the transfer of company assets to his children.

Samsung is South Korea's largest family-controlled conglomerate, or chaebol, but the stake held by the controlling Lee family has been increasingly diluted by investments and share transfers which fuelled the company's near-exponential growth.

Last year, Samsung was accused of attempting to use its de facto holding company, Samsung Everland, as a vehicle to pass control of the group to Lee's son.

Two executives were convicted on charges of illicitly selling shares to the younger Lee at a $960m discount on the market value.

Lee's return reportedly came just hours after a government committee announced that it had decided not to summon him for further questioning about the affair.

In a meeting on Sunday, government ministers decided to move towards banning corporate circular structures such as Samsung's. Under current plans, the ban will not be retroactive.

Other major conglomerates singled out by the KFTC for overly-complex corporate structures include the SK Group, which operates SK Telecom, one of the country's largest mobile telecoms networks.

"Leading shareholders of conglomerates control 40 to 50 affiliates despite owning about five per cent of all issued shares," said the FTC.

Observers have already raised warning flags over the highly-leveraged nature of Samsung's structure, particularly the $60bn a year Samsung Electronics unit, in which the main group reportedly has only a 15 per cent stake.

Following planned government action to enforce existing regulations, Samsung will see its voting rights in holding company Samsung Everland reduced from 25 per cent to just five per cent, media reports claimed earlier this year.

Samsung Everland, which operates one of the world's largest amusement parks near Seoul, indirectly controls a significant seven per cent stake in Samsung Electronics.

The voting rights of that stake will also be restricted to five per cent under proposed new rules.

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