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Chaebol to own corporate venture capital

First Vice Minister of Economy and Finance Kim Yong-beom, right, speaks during a briefing at the Seoul Government Complex in Gwanghwamun, Seoul, Thursday. Yonhap
First Vice Minister of Economy and Finance Kim Yong-beom, right, speaks during a briefing at the Seoul Government Complex in Gwanghwamun, Seoul, Thursday. Yonhap

Function limited to investment, not lending biz

By Lee Kyung-min

The government said Thursday it will allow non-financial holding firms to own corporate venture capital (CVC) firms in which they have no controlling interest, in a move to foster much-flagging private investment amid the economic crisis brought on by the COVID-19 pandemic. This could happen as early as within the year, upon passage of a related law under which a financial investment subsidiary can be owned entirely by a cash-abundant conglomerate.

The new regulation will be limited to investment and strictly prohibits expanding into lending among other financial service businesses. This is to help redirect low borrowing cost-oriented liquidity overflow to investment, a much-needed economic activity that could induce growth and higher productivity in the long term.

As a measure against the "uncontrollable" growth of large non-financial holding firms, a number of restrictions will be put in place to prevent the CVCs from being "abused" to advance the business interests of the conglomerates and their affiliates mostly belonging to owner families.

The Ministry of Economy and Finance said the Fair Trade Commission (FTC) Law will be revised before the end of the year as a follow-up to the ministry's policy directives for the latter half of the year announced in June.

Under the revision, CVCs can function as an investment entity set up to either foster job creation at small- and medium-sized enterprises (SMEs), or as one to advance new tech-backed financial services.

The former must invest at least 40 percent of their capital in venture startups, while the latter will not be able to invest in businesses other than SMEs whose growth model is new technology development or businesses that are commercializing such technology.

The CVCs will be able to borrow up to 200 percent of their capital. If they set up a fund, at least 60 percent of the capital must be pooled from their holding firm, with the remaining 40 percent to be drawn from outside investors. The CVCs will be able to invest only up to 20 percent of their total capital overseas, a necessary step to induce domestic investment of most of the funds.

Funds will be strictly prohibited from being used to invest in large conglomerates and their affiliates. Also to be prohibited are CVCs receiving investments from financial affiliates of conglomerates. They will function solely as an investment subsidiary, a reason their business will not be expanded to lending or other financial services.

The holding firms must file a regular report with the FTC on changes in records concerning investment, borrowing or transactions with individuals whose business interests are aligned with the success of the CVCs.

"The importance of innovative venture firms is growing amid overall rapid socioeconomic structural changes including a boom in contactless businesses, digitization and the acceleration of the Fourth Industrial Revolution," First Vice Minister of Economy and Finance Kim Yong-beom said during a briefing at the Seoul Government Complex in Gwanghwamun, Seoul, Thursday.

"The funds in the market should be funneled into creating an ecosystem and fostering innovative firms: productive activities that will enrich economic dynamism and innovation."

The government is of the stance that the large conglomerates can use their resources to nurture venture startups via stable financing of long-term high-risk capital.

It believes the initiative will be of mutual benefit to both, because large conglomerates will be able to seek greater business opportunities and startups will be able to share corporate growth strategies including technological development and overall management from the capital provider.




First Vice Minister of Economy and Finance Kim Yong-beom, right, speaks during a briefing at the Seoul Government Complex in Gwanghwamun, Seoul, Thursday. Yonhap
First Vice Minister of Economy and Finance Kim Yong-beom, right, speaks during a briefing at the Seoul Government Complex in Gwanghwamun, Seoul, Thursday. Yonhap

Function limited to investment, not lending biz

By Lee Kyung-min

The government said Thursday it will allow non-financial holding firms to own corporate venture capital (CVC) firms in which they have no controlling interest, in a move to foster much-flagging private investment amid the economic crisis brought on by the COVID-19 pandemic. This could happen as early as within the year, upon passage of a related law under which a financial investment subsidiary can be owned entirely by a cash-abundant conglomerate.

The new regulation will be limited to investment and strictly prohibits expanding into lending among other financial service businesses. This is to help redirect low borrowing cost-oriented liquidity overflow to investment, a much-needed economic activity that could induce growth and higher productivity in the long term.

As a measure against the "uncontrollable" growth of large non-financial holding firms, a number of restrictions will be put in place to prevent the CVCs from being "abused" to advance the business interests of the conglomerates and their affiliates mostly belonging to owner families.

The Ministry of Economy and Finance said the Fair Trade Commission (FTC) Law will be revised before the end of the year as a follow-up to the ministry's policy directives for the latter half of the year announced in June.

Under the revision, CVCs can function as an investment entity set up to either foster job creation at small- and medium-sized enterprises (SMEs), or as one to advance new tech-backed financial services.

The former must invest at least 40 percent of their capital in venture startups, while the latter will not be able to invest in businesses other than SMEs whose growth model is new technology development or businesses that are commercializing such technology.

The CVCs will be able to borrow up to 200 percent of their capital. If they set up a fund, at least 60 percent of the capital must be pooled from their holding firm, with the remaining 40 percent to be drawn from outside investors. The CVCs will be able to invest only up to 20 percent of their total capital overseas, a necessary step to induce domestic investment of most of the funds.

Funds will be strictly prohibited from being used to invest in large conglomerates and their affiliates. Also to be prohibited are CVCs receiving investments from financial affiliates of conglomerates. They will function solely as an investment subsidiary, a reason their business will not be expanded to lending or other financial services.

The holding firms must file a regular report with the FTC on changes in records concerning investment, borrowing or transactions with individuals whose business interests are aligned with the success of the CVCs.

"The importance of innovative venture firms is growing amid overall rapid socioeconomic structural changes including a boom in contactless businesses, digitization and the acceleration of the Fourth Industrial Revolution," First Vice Minister of Economy and Finance Kim Yong-beom said during a briefing at the Seoul Government Complex in Gwanghwamun, Seoul, Thursday.

"The funds in the market should be funneled into creating an ecosystem and fostering innovative firms: productive activities that will enrich economic dynamism and innovation."

The government is of the stance that the large conglomerates can use their resources to nurture venture startups via stable financing of long-term high-risk capital.

It believes the initiative will be of mutual benefit to both, because large conglomerates will be able to seek greater business opportunities and startups will be able to share corporate growth strategies including technological development and overall management from the capital provider.




Lee Kyung-min lkm@koreatimes.co.kr

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