Attention is being focused on the possibility of changes to IMM Investment’s governance after the South Korean private equity firm has been included in the list of enterprise groups subject to publication of corporate information – the first such case among private equity firms in the country.
The country’s antitrust watchdog Fair Trade Commission (FTC) said on May 3 that it designated 64 enterprise groups subject to publication of corporate information and gave notice to them. Among them is IMM Investment, which marks the first time for a private equity firm in the country.
IMM Investment was added to the designation list because it met two conditions prescribed under the Monopoly Regulation and Fair Trade Act. First, the total assets of companies belonging to the enterprise group exceed 5 trillion won, and the second is that the same natural person substantially controls the enterprise group.
As of the end of 2019, 79 companies belong to IMM Investment and its total assets stood at around 6.3 trillion won, surpassing the 5 trillion won threshold with 12 new investment vehicles added last year. Currently, three senior executives of IMM Investment hold the entire stake in IMM, LLC (IMM) – the corporation at the top of the group’s governance hierarchy – and its chief executive Ji Sung-bae owns 42.76 percent of IMM, which makes it meet the description of the second condition.
To be removed from the designation, IMM Investment would have to maintain its total assets under 5 trillion won, which is an unrealistic option for the private equity firm. Nonetheless, it is still possible to make changes to its governance structure to circumvent the regulation.
To that end, IMM Investment would need to change a legal entity that substantially controls the group from the current natural person to a juristic person. This means IMM’s total shares should be evenly owned by several individuals.
“If several people own a similar fraction of the total shares, then it can be deemed that a natural person does not substantially control the enterprise group,” an FTC official said.
If IMM Investment changes its governance structure this way, IMM, which is a juristic person, would be deemed to be a legal entity that has substantial control over the group. After that, it additionally needs to change IMM’s type of business to include financing or insurance business – the two sectors exempted from the antitrust regulation because companies in these sectors are regulated under the separate Acts.
“Companies included in this watch list are mandated to disclose corporate information including their investment assets, which could be a significant risk to an investment firm,” an industry insider noted. Fine will be imposed on companies that fail to comply with the mandatory rules on publication or make a false disclosure.
“We are not considering at all changing our governance structure,” a representative for IMM Investment said. (By reporter Kim Byung-yoon)