Gov’t to slash holding co’s required stake in 3rd-tier subsidiary from 100% to 20%

February 24, 2014 Leave a comment

Gov’t to slash holding co’s required stake in 3rd-tier subsidiary from 100% to 20%

Shin Hyun-gyu, Kim Yoo-tae

2014.02.13 17:54:14

The South Korean government decided to implement a measure to induce conglomerates to invest their internal reserves to stimulate the creative economy and venture business industry. 
At present, if a holding company wants to acquire and turn a venture firm or small and mid-sized business (SMB) into a great grandson subsidiary via its sub-subsidiary, its sub-subsidiary is required to own 100 percent of the great grandson subsidiary. But the government plans to scale back the mandatory ownership quota to 20 percent for acquiring listed companies. 
The relevant governmental agencies discussed such ‘merger and acquisition (M&A) stimulus measure’ at a vice ministerial-level meeting at the government complex in Gwanghwamun, said the Ministry of Strategy and Finance, Ministry of Science, ICT and Future Planning, Ministry of Trade, Industry and Energy and others Thursday. “The three-year economic innovation plan, which carries ‘creative economy’ as one of major themes, will incorporate M&A stimulus plan to accomplish the theme,” a government official said. 
The government intends to cut a holding company’s compulsory 100 percent stake quota in non-listed great grandson subsidiary from 100 percent to 40 percent, and that of listed great grandson subsidiary to 20 percent. This would channel conglomerates’ funds into a larger number of small and mid-sized venture firms. Under the current law, a holding company’s sub-subsidiary, which has 10 billion won ($9.3 million) cash, can only buy two venture companies worth five billion won each. But with this deregulation, such sub-subsidiary will be able to invest two billion won of its holding company’s fund, or 40 percent stake, in each of five non-listed venture firms worth five billion won in total. This means all the five venture firms will be able to receive funds.

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