South Korea: Hyundai, Kia ordered to trim cross holdings by antitrust authorities

South Korea’s antitrust regulator ordered Hyundai Motor Group to cut cross-shareholdings strengthened by a merger between two steelmaking affiliates.

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

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.