Conglomerate families use unlisted units to cash out hefty dividends

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Some chaebol chairmen and their families extracted significant sums from their conglomerates' unlisted units in 2024, industry officials said Sunday.

Exploiting weak oversight over the unlisted companies, they received dividends that often exceeded the company's net profits. They even received dividends when firms posted net losses.

According to an audit report on the Financial Supervisory Service’s electronic disclosure system, Samyang International, an unlisted subsidiary of GS Group, paid out 10 billion won ($7.2 million) in dividends in 2024, surpassing its net profit of nearly 9.2 billion won.

The majority of the dividends, around 8.2 billion won, went to three fourth-generation members of the GS Group owner family, including Huh Joon-hong, the company's largest shareholder. They also received 5.2 billion won and 8 billion won, respectively, from other unlisted affiliates, Samjoung Development and Seungsan.

Such practices are widespread across industries, affecting both established and emerging firms alike.

K Cube Holdings, an unlisted investment arm of Kakao Group, paid 1.5 billion won in dividends last year despite a net loss of 3.3 billion won. The entire amount went to Kakao founder Kim Beom-su, who owns 100 percent of the subsidiary’s shares.

Gwang Young Construction, an unlisted affiliate of Booyoung Group, also paid 16.27 billion won in dividends to Booyoung Chairman Lee Joong-keun and 3.16 billion won to his eldest son. The affiliate's net income was approximately 14.7 billion won, nearly 5 billion won less than the total dividends paid.

Orpum, an unlisted poultry processing affiliate of Harim Group, paid a dividend of 4.25 billion won to Kim Jun-young, the chairman's eldest son and sole shareholder of the company. Again, the amount exceeded its net income of 3.97 billion won.

Industry officials contend that the practice not only enables unlawful asset transfers but also infringes on shareholder rights.

"Controlling families are effectively privatizing these companies, treating them as personal assets and distributing profits to relatives and affiliated entities," said Jung Eui-jung, head of the Korean Stockholders' Alliance. "Meanwhile, ordinary investors who placed their trust in these firms are left bearing the losses."

Unlisted affiliates, often partially owned by the children of conglomerate leaders, frequently take control of lucrative business within the groups, and channel profits into dividend payouts. This structure often disadvantages listed companies, which lose revenue as major contracts are shifted away and reduce their ability to deliver competitive returns to their shareholders.

These practices are made possible in part by lax disclosure rules. Unlisted firms are subject to far fewer transparency requirements regarding key management decisions.

Compounding the issue is weak board oversight, frequently cited as a factor in the undervaluation of Korea’s stock market. Boards, often influenced by founding families, may overlook or even enable these decisions, reinforcing a system that prioritizes family interests over broader shareholder value.

Yet, there is cautious optimism that such practices may decline if revisions to the Commercial Act lead to stronger penalties for breaches of fiduciary duty and increase shareholder derivative lawsuits.