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The Financial Services Commission on Monday unveiled regulations planned for the first half of this year that would allow financial holding firms to own non-financial companies such as manufacturers. That would permit conglomerates like Samsung Group with financial subsidiaries under their control to revamp their often Byzantine governance structure through financial holding firms.
This new policy will bring a sea change to conglomerates' governance structure, and allow new chaebol centered around insurance and securities firms to emerge.
Later this year at the earliest, a three-stage plan will be implemented to completely ease current rules that ban non-financial companies from controlling more than 4 percent of the shares with voting rights in a bank. The FSC unveiled the plans in a briefing for President Lee Myung-bak.
Once the relevant laws are revised, conglomerates such as Samsung, Hanwha, Kyobo, Hungkuk, and Dongbu which own financial firms will be allowed to turn themselves into financial holding firms, while maintaining their existing subsidiary structure. The Samsung Group, whose ownership structure is based on a dizzying cross-hatch of circular investment between subsidiaries, can then turn Samsung Life Insurance into the proper holding company.
Under the current law, a financial firm is banned from controlling more than 5 percent of the shares with voting rights in a non-financial firm. For Samsung Life Insurance, that would mean selling part of its shares of Samsung Electronics if it was to become a financial holding firm. Samsung Life holds a 7.2 percent stake in Samsung Electronics.
If a financial holding firm is in turn to own a non-financial firm, it must completely stop circular or cross-investment and insider trading between its subsidiaries, the FSC added.
As the first stage of deregulation, the FSC said it will allow private equity funds and pension funds to invest in commercial banks as early as the second half of this year. In the second stage, the FSC will raise the bank ownership cap from the current 4 percent to 10 percent. It will eventually scrap restrictions on ownership of bank shares fully.
That will allow conglomerates or pension funds such as the National Pension Service to buy shares in state-run banks such as Korea Development Bank, whose privatization is on the cards in the second half of the year. The KDB will be turned into a financial holding firm by the end of this year, and 49 percent of its shares will be sold from 2009 until 2012, after which it will be completely privatized.
With the proceeds from the sale of the KDB shares, the government will establish the Korea Investment Fund (KIF), which will handle the KDB's financing policies, including support for small and medium-sized enterprises.
(englishnews@chosun.com )
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