Major South Korean food companies are moving fast to adopt holding company structures amid growing concerns among corporate circles over the Moon Jae-in administration’s chaebol reform drive. 

Maeil Dairy Industry said it changed its name to Maeil Holdings Co. in April as it has adopted the holding company structure and split off Maeil Dairies as a business unit.

Orion, a local confectionary company, also took a similar path, splitting off the company into a holding company -- Orion Holdings -- and Orion as an operating company. They will be relisted to the local stock market next month.

Crown-Haitai Confectionery Group has also completed a change in its governance structure by establishing a holding company for the first time in 70 years. The structural change brought the holding company under control of Yoon Seok-bin, the eldest son of the group’s chairman Yoon Young-dal, while Crown Confectionery, now a business unit, is run by Chang Wan-soo, a CEO and not a family member.

Sempio Foods Company, a local sauce maker, finished the job late last year with the incumbent chairman leading the holding company while his eldest son took over the business unit.

The companies said creating a holding company structure would increase transparency in corporate governance and enhance the companies’ drive in seeking future growth engines.

“The company has adopted a holding company structure because it could increase management efficiency and transparency,” Sempio said.

But such moves also coincide with the inauguration of the new administration. Lawmakers of the now-ruling Democratic Party of Korea are seeking to revise related laws to strengthen requirements for companies adopting a holding company structure. An enforcement decree is also set to be implemented in July, raising an asset requirement of those seeking to become a holding company from the current 100 billion won ($89 million) to 500 billion won.

A holding company structure is generally seen as an opposite method to opaque cross-shareholding structure, but experts suggest caution for investors.

“Adopting a holding company structure could improve share value and strengthen leadership in major shareholders (ownership families) in the short-term, but in the long-term it is a groundwork for leadership succession,” a market observer said. “Investors should take precautions as there are many variables such as a change in management, stock allocation and possible sell-offs of subsidiaries in deficit within food companies adopting holding company structure.”

By Cho Chung-un (christory@heraldcorp.com)