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FTC head draws fire from shareholders of chaebol units

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FTC Chairman Kim Sang-jo
FTC Chairman Kim Sang-jo

By Yoon Ja-young

Minority shareholders of Samsung SDS are taking action against Fair Trade Commission (FTC) Chairman Kim Sang-jo as his comment pulled down prices of company shares.

"Please dismiss FTC Chairman Kim Sang-jo who is transcending laws," they requested on the web bulletin board of Cheong Wa Dae.

The group of small shareholders said Monday they will take any legal measure possible unless the problem is dealt with properly.

"Samsung SDS shares plunged following the comment by the FTC chairman, incurring huge losses on small shareholders," they said in an announcement.

The FTC chief said in a meeting with reporters last Thursday that owner families of large business groups should sell their stakes in non-core affiliates that rely on inter-subsidiary trading, citing system integration, logistics, real estate management and advertising firms as such.

The comment is based on criticism that conglomerate owner families are fattening their own wallets by setting up such companies, winning orders from group subsidiaries and later using the easy profit to inherit managerial control of the whole group.

The pressure from FTC chief had an immediate impact on the market, pulling down shares of the companies targeted. The former economics professor, dubbed "chaebol sniper" for his lifelong dedication to "chaebol reform," joined the Moon administration a year ago amid much attention.

Samsung SDS, which is in charge of Samsung Group's SI, dropped 14 percent to 196,500 won ($178) the next day, losing 2.3 trillion won in market cap. It continued to fall by 0.51 percent on Monday. Shinsegae Group's Shinsegae I&C fell 13.7 percent, while Hyundai Motor Group's ad company Innocean lost 7.2 percent and Samsung Group's Cheil Worldwide dropped 4.1 percent on Friday.

The small shareholders of Samsung SDS requested the FTC to answer their questions: what are the criteria to distinguish a core business from non-core businesses of a chaebol, what are the legal grounds for requesting the conglomerates sell off non-core affiliates, and how small shareholders can cope with the losses. They said they would take legal action if they fail to get proper answers.

Most of the conglomerates have their own system integration companies, such as Hyundai Motor Group's Hyundai AutoEver, SK Group's SK C&C and LG Group's LG CNS. According to the FTC's survey of 27 large business groups that have over 10 trillion won assets, inter-subsidiary trading took 69.8 percent of total trading by system integration companies.

However, conglomerates claim they need their own system integration companies as they deal with confidential group business information which should not be leaked to competitors.

They also point out there already exists a regulation to block owner families from profiteering through internal trading. Companies listed on the bourse where owner families have over a 30 percent stake as well as non-listed companies where they hold over a 20 percent stake are subject to the regulation. In the case of Samsung SDS, the owner family, including Samsung Electronics Vice Chairman Lee Jae-yong, holds a 17.01 percent stake.

"Following stronger regulation by the government, these companies cannot expect full support from the business group as they did in the past," said Yoon Tae-ho, an analyst at Korea Investment and Securities.


Yoon Ja-young yjy@koreatimes.co.kr


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