Conglomerate Holding Companies’ Limited CVC Ownership Likely to be Permitted

The South Korean government is considering allowing conglomerate holding companies to own corporate venture capitals (CVCs) on certain conditions. Related measures are likely to be announced next month.

Early this month, the government said that it would contemplate the approval so that the venture and startup ecosystem can become more dynamic and another investment boom can be created in the ecosystem. However, it was pointed out that the approval of the ownership is against the principle of separation of industrial and financial capital and the government has worked on measures for compliance with the principle.

At present, different government organizations have different opinions on the issue. For example, the Ministry of Economy and Finance is in favor, claiming that it can lead to more venture investment. On the other hand, the Korea Fair Trade Commission is against it, saying that existing deregulation for venture holding companies is already sufficient. Even so, the government is likely to permit the limited ownership and what matters now is how much it will reflect the commission’s opinions.

The government has examined specific issues such as CVCs’ financing methods, investment destinations and shareholdings. It is likely to adopt non-participation of external capital in order to prevent conglomerates’ excessive business diversification. The CVCs of Google and Intel are making venture investments solely from the parent companies’ money, too.

Other potential measures include a relatively higher shareholding ratio requirement and a ban on conglomerate owners’ CVC ownership. According to the current Fair Trade Act, a holding company must own at least 20 percent of a listed subsidiary and at least 40 percent of a non-listed subsidiary.