Holding Firms Reap Royalties From Subsidiaries
By Lee Hyo-sik
Staff Reporter
Brand royalties from subsidiaries have emerged as a major source of income for LG Corp. and other large holding companies over the past few years, boosting their bottom line. CJ Holdings and other mid-tier holding firms are also considering collecting brand usage fees from affiliated units.
The parent firm of a business group that adopted the holding company structure usually operates no businesses but holds large stakes in subsidiaries and receives dividends. But recently, a growing number of holding companies have required affiliates to pay 0.1 to 0.2 percent of their revenues as brand royalties to secure more funds for operations and increase corporate value.
According to the Financial Supervisory Service (FSS) Monday, LG Corp, the holding company of LG Group, collected 0.2 percent of the annual revenues of its 22 subsidiaries as royalties last year, totaling 164 billion won. It earned 139 billion won in 2006 and 135 billion won in 2005 when it first began collecting brand fees. LG group turned itself into a holding company structure in 2003.
Among group units, LG Electronics paid 79.7 billion won, followed by LG Chemical with 24 billion won and LG Display with 14.4 billion won.
Ten GS group affiliates paid their parent company GS Holdings 0.05 percent to 0.1 percent of their revenues, amounting to 21 billion won, last year as royalties. GS Holdings got 11.2 billion won from GS Caltex, 5.7 billion won from GS Engineering and Construction, 2.7 billion won from GS Retail.
GS Holdings has been receiving brand fees from group units since July 2004 when GS Group separated from LG Group and also adopted a holding company structure.
STX Corp, STX Group holding company, also collected 14.7 billion won from seven group units in 2007, up from 9.8 billion won in 2006 and 3.2 billion won in 2005.
Meanwhile, financial holding firms and most parent companies of mid-size conglomerates under a holding company structure currently do not receive brand royalties from subsidiaries, the FSS said.
But according to industry analysts, many of them are considering getting this to secure more revenue.
A securities analyst here said many large holding companies that enjoy greater corporate brand recognition require subsidiaries to pay brand royalties as they have a limited sources of income, adding the practice will spread to mid-size business groups under the holding company structure.