Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Can Nexon founder's family buy back stakes they unloaded to pay tax?
Nexon headquarters in Seongnam, Gyeonggi Province / Yonhap
By Nam Hyun-woo
Gov't strives to sell corporate stakes under its management, but breakthrough seems unlikely
The family of Nexon's founder sold their 645 billion won ($485.3 million) stake in the video game giant to the holding company NXC. This sale is intended to help cover approximately 6 trillion won in inheritance taxes.
When combined with the 4.7 trillion won in NXC shares that the family paid to the government in February last year, the family has now completed the payment of the enormous amount of inheritance tax that it owed. However, questions remain as to whether the owner family will be able to reacquire these stakes and maintain their control over their gaming empire.
NXC said in a regulatory filing on Monday that it bought back more than 120,000 of its shares from Nexon founder Kim Jung-ju’s widow Yoo Jung-hyun, the NXC board chair, and their two children. The combined value of those shares amounts to 645 billion won.
NXC said the buyback is aimed at “stabilizing the group’s management and the inheriting family members’ prompt payment of the inheritance tax.”
Late Nexon founder Kim Jung-ju / Yonhap
After Kim passed away in 2022, the bereaved family reportedly inherited approximately 10 trillion won in assets, mostly shares of NXC and other affiliates of Nexon Group. Since the country’s law imposes a maximum 60 percent inheritance tax when a conglomerate’s largest owner passes down assets for their family, the Nexon owner family had to pay 6 trillion won in tax to the government.
Korea allows inheritors to pay taxes in shares, and in February, the Nexon owner family handed over 29.3 percent of their stake in NXC, valued at 4.7 trillion won, to the government. This made the government the second-largest shareholder of the company.
The government, through the Korea Asset Management Corp. (KAMCO), put these shares up for sale. Despite auctioning the NXC shares twice, no bids were placed. The sales attempts failed primarily because NXC is not a listed company, making its valuation challenging. Additionally, none of the eligible entities could afford the 4.7 trillion won to pay for a non-controlling stake.
For similar reasons, there are 309 cases of corporate shares that have been paid for inheritance tax but have yet to be sold, according to the Ministry of Economy and Finance.
To address these government-held corporate stakes, Korea has been running a program since 2019, which grants inheritors five years of exclusive rights to reacquire the stakes they paid as taxes. However, no one has applied for this program, as it is limited to companies with annual revenue below 300 billion won.
In an effort to encourage buybacks, Deputy Prime Minister Choi Sang-mok announced on Aug. 14 that the government will expand eligibility for the buyback program to include all companies not classified as conglomerates. Additionally, the government will offer up to a 50 percent discount on stakes if their auctions fail two or more times.
This, however, will not be the case for Nexon, which is categorized as a conglomerate by the Fair Trade Commission. Nexon is Korea’s 43rd-largest conglomerate with its total assets standing at 11.9 trillion won.
Given that the owner family still owns a controlling stake in NXC and that anyone becoming the second-largest shareholder receives no benefits except for dividends, industry officials said that there is a “fair chance” of the owner family being able to buy back the shares or the government carrying out other measures to encourage the sale.
“Under the current circumstances, the NXC stakes do not seem attractive, which is a burden for the government as well,” an industry official said. “Though the government recently announced improvements to programs related to inheritance taxes, the fundamental problem is the extremely high tax rate.”