Hyundai i30
Source: Xinhua Finance

Hyundai Steel Co. merged with another steelmaking affiliate, Hyundai Hysco, on July 1, the Fair Trade Commission said in a statement.

Hyundai i30
Source: Xinhua Finance

The commission gave Hyundai Motor Co. and Kia Motors Corp. until Thursday to reduce the cross holdings, according to an e-mailed statement. One option is to have Hyundai Motor sell a 4.3 percent stake in Hyundai Steel and for Kia to dispose of a 2.3 percent holding.

Failing that, Hyundai Motor Group’s affiliates must sell down holdings in one another that create “circular shareholdings.” That term refers to a situation where one company owns shares in a second, which in turn has investments that loop back to a holding in the first company.

South Korea’s government has targeted cross shareholdings, a common practice among major conglomerates that helps families tighten their grip on chaebols with only minority stakes. The structure has been blamed for weakening corporate governance by encouraging loans from profitable companies to struggling affiliates.

Hyundai Motor and Kia hold a 11 percent and 20 percent stake in Hyundai Steel, respectively. The group has asked the commission to extend the deadline, according to e-mailed response.

The order comes days after the regulator ordered Samsung Group to cut cross-shareholdings. The commission had ruled that the chaebol must address a complex web of shareholdings involving its affiliates and Samsung C&T Corp., the group’s de facto holding company formed through the deal in September.

Source: Bloomberg

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