Chaebol’s undue gains

The entrenched business malpractice of chaebol owners and their family members receiving huge dividends through unlisted companies remains intact despite an avalanche of criticism. Rather, such “dividend parties’’ are becoming more conspicuous amid slack public scrutiny.

Some of the unlisted companies made hefty dividend payouts while in the red, which often serves as an illicit means for tycoons to transfer wealth to their children at the expense of the shareholders of a chaebol’s listed subsidiaries.

This is in stark contrast to the fact that listed companies are stingy with dividends in general ― the dividend payout ratio among listed companies, which measures the percentage of net profit to dividends, averages about 15 percent in Korea.

True, how conglomerates’ unlisted affiliates paid dividends to shareholders is jaw-dropping.

In 2013, Hyundai U&I, Hyundai Group’s IT service provider, allocated 1.2 billion won and 200 million won to Hyun Jeong-un, the group chairwoman, and her daughter, respectively. The payout, however, makes no sense, considering that the company suffered a 9.2 billion won deficit last year.

Booyoung Group Chairman Lee Joong-keun and his son received a total of 10 billion won in dividends from the group’s unlisted civil engineering unit although the company’s net profit remained at 770 million won. It’s outrageous that the dividend was 13 times bigger than the net income.

Hyosung CEO Cho Hyun-joon and KCC CEO Chung Mong-ick also received 4.4 billion won and 4 billion won, respectively, from their unlisted subsidiaries.

It’s no wonder that these unlisted chaebol affiliates are generous in offering dividends, given that their shareholders are mostly owners and their family members.

Yet what has been revealed may be the tip of the iceberg, taking into account that 420 among 1,098 unlisted companies affiliated with 33 conglomerates with group chairmen have yet to submit their annual reports to the financial regulator. It’s reasonable to believe then that the actual dividend payouts to the tycoons and their family members are much bigger than reported.

Dividend payouts are up to corporate shareholders, but a willful dividend spree is tantamount to breach of trust, especially when companies grapple with management woes. That’s because most unlisted firms are in their infancy and therefore, their profits must be used first to ensure internal stability.

Also, excessive dividends do harm to the shareholders of the conglomerates’ listed firms in the end because the listed firms often give favors to their unlisted sister companies in transactions at the expense of their shareholders.

It’s long past time to put the brakes on chaebol families’ mistaken dividend spree using unlisted subsidiaries. The government, in particular, should deal strictly with excessive dividends by loss-making affiliates in light of cracking down on chaebol capitalizing on undue gains. The korea times