A turmoil surrounding Tong Yang Group and Hyosung Group is turning the spotlight on separating industrial and financial capital and tightening evaluation to screen out disqualified large shareholders

October 14, 2013 Leave a comment

Calls growing for tightened efforts to separate industrial, financial capital

Lee Jin-myung, Chung Seok-woo

2013.10.14 14:48:33

A turmoil surrounding Tong Yang Group and Hyosung Group is turning the spotlight on separating industrial and financial capital and tightening evaluation to screen out disqualified large shareholders. There is a growing call for stepping up efforts to separate industrial and financial capital in the wake of allegations regarding Tong Yang Group and Hyosung Group, which are accused of engaging in financial fraud and other illegal methods to secure money for its financially squeezed affiliates. “The lesson that we have learned from the Tong Yang scandal is that we should strengthen the separation of financial and industrial capital,” Fair Trade Commission Chairman Noh Dae-lae reaffirmed the commitment saying, “in order to prevent risks from spreading from one affiliate from another, it is necessary to improve the overall holding company system through which we should strengthen the mechanism to separate financial and industrial affiliates,” Noh said.”
At the inspection of the National Assembly scheduled for Monday, the scandal surrounding Tong Yang Group and Hyosung Group will be also high on the table, which could give a boost to the relevant legislation.
The Fair Trade Commission is reviewing ways to cap voting rights for shareholders of financial and insurance companies` non-finanical affiliates at five percent in gradual manners.
The purpose is to prevent business groups from using banks and other financial affiliates as their private coffers and expanding their presence on noon-financial affiliates.
The Fair Trade Commission will also plan to mandate business groups to establish intermediary financial holding companies if they meet certain conditions.
At present, general holding companies cannot own financial/insurance units as their affiliates, so they have to sell financial/ insurance units to convert into holding companies. The new revision, however, will open the door for large companies, which do not own holding companies such as Samsung Group and Hyundai Motor, to turn into holding companies with financial/ insurance units in place.
This would enable separation between industrial and financial capital. Affiliates of holding companies will be banned from cross-shareholding investment, making cross-shareholding impossible between financial and non-finanical affiliates.
Business groups, which have over three financial and insurance companies or own over 20 trillion won in the combined asset, will be obliged to create intermediary financial holding companies. For example, as for Samsung Group and Hyundai Automotive Group, their general holding companies will be banned from directly owning their financial/ insurance units – Samsung Life Insurance and Hyundai Card and should control them through intermediary financial holding companies.

Filed under Investing Process, Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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