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FROM:
 |  |  corporate sector might have finally hit upon on a feasible way to improve its lackluster corporate governance and transparency. The plan: Tidy up the complex web of cross-shareholdings among the country's sprawling conglomerates, or chaebols, into neat | | and orderly holding companies.
The intricate business and financial relationships between affiliate companies that helped make Korea's chaebols powerful are now proving problematic. Outsiders have a hard time understanding the true ownership structure or state of finances of the companies. These tangled relationships have contributed to the "Korea discount" that keeps Korean equities trading more cheaply than other markets in the region. The Korea Stock Price Composite Index, or Kospi, trades at an average price-to-book multiple of about one, while the Taiwan Stock Exchange trades at about 1.5. The price-to-book ratio compares the share price with the actual cost of the company's assets, minus depreciation.
In the past, it took the government to bring change to the chaebols. Following the Asian financial crisis, a government-led campaign to overhaul big business in Korea saw the dissolution of the Daewoo group after it went bankrupt in 1999, and the split-up of the Hyundai Group into three smaller groups in 2000.
These days, attempts at reform are coming from the conglomerates themselves. So far this year, five conglomerates, including one of the country's largest, LG Group, have restructured themselves into holding companies to simplify their ownership arrangements and increase shareholder value for both majority and minority holders. The other reformers are electronic-parts maker Daewoo Telecom, Dongwon Financial Holding, ramen-noodle maker Nongshim Holdings and natural-foods packager Pulmuone. Since legislation was passed three years ago, paving the way for holding companies, a total of 19 have been formed. Analysts and executives say that some of these early successes could build momentum for other conglomerates to follow.
"After LG group's restructuring, yes, more companies are thinking about whether the holding company makes sense for them, too," says David Kim, chairman and chief executive officer of Daesung Group, a Seoul global-energy concern. Daesung, says Mr. Kim, also is evaluating various restructuring strategies, including the holding-company model. | | "It clears up the clutter," says Henry M. Seggerman, president of International Investment Advisers, a Korea-focused investment-management company in New York. "It lessens the value-destroying impact of diversification by dramatically reducing company hold-ings in completely unrelated busi-nesses." | <
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