Korea’s Chaebol Reform a Rare Bonus for Bankers

Euromoney, December 2016

With deal volumes weak across most of Asia, South Korea’s latest round of chaebol reform – some by choice, some by necessity – is welcome news for M&A bankers. There is plenty to do, but none of it simple, and not always lucrative.

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South Korea’s chaebols are a throwback. Tangled and powerful, they date from the country’s efforts to bolster industrial growth in the aftermath of the civil war. Under tight family control and swept up on a wave of exporting success that has lasted on and off for half a century, they are everywhere. And they are also out-of-date, stifling growth and entrepreneurship, where once they drove it.

The idea of reforming these huge conglomerates is nothing new. LG, controlled by the Koo family, was the first of the biggest chaebol to start dismantling its labyrinthine circular shareholdings and move to a holding company structure in the early years of this century; it was followed by SK a few years later. Now there is a renewed round of activity driven by two different causes.

At the top end, Samsung – the biggest and most powerful of the chaebol – has set about selling non-core assets and simplifying company structures in a move that has attracted not only international investors but international activists. Below the top tier, a second wave of chaebol have run into trouble, unable to service their debts in a fragile world economy that penalizes exporters, and are restructuring by necessity, selling and listing businesses to meet the bills.

“Below the top chaebol, you have companies that aren’t making as much profit as they used to,” says ChunKee Lee, chief executive for Korea at Credit Suisse. “They’re not earning enough, they’re being reviewed by their creditor banks and they are being encouraged to sell their non-core assets.”

Full article: http://www.euromoney.com/Article/3605626/Koreas-chaebol-reform-a-rare-bonus-for-bankers