[비즈한국] Line Group was designated as a large corporate group subject to disclosure this April after its total assets exceeded 5 trillion won, ranking 61st in the business world. Its primary business is construction, with affiliates including Line Construction, Dongyang Construction Industries, and Line Industry. The group was able to reach the ranks of large corporations thanks to the steady performance of apartment brands such as Line Construction’s ‘The One’ and Dongyang Construction Industries’ ‘Paragon.’
Line Group is also engaged in the financial sector, with affiliates such as Double Savings Bank, Double Capital, and Double Finance Loan. The family of Kong Byung-hak, chairman of Line Group, entered the financial business in 2011 by acquiring Double Savings Bank (formerly Mudeung Savings Bank). Double Savings Bank, which operates in the Honam region, recorded a net profit of 8.7 billion won last year. Excluding Smart Savings Bank, which has branches in the Seoul metropolitan area, it holds the number one spot in net profit among savings banks operating exclusively in the Honam region. Double Savings Bank plans to change its name to Line Savings Bank this September.
Dongyang Architectural Office, which holds stakes in major affiliates, grew through internal transactions
Currently, the largest shareholder of Double Savings Bank is Dongyang Architectural Office. At the end of June 2012, Dongyang Architectural Office held only a 10% stake in Double Savings Bank. Since then, it has steadily purchased shares and raised its stake to 100% by the end of last year.
Dongyang Architectural Office is an architectural design firm and is a family company of Chairman Kong Byung-hak. Oh Jung-hwa (63), chairman of the Line Cultural Foundation and wife of Chairman Kong, holds a 48.97% stake, while their second son, Kong Seung-hyun (29), an other non-executive director at Double Capital, holds a 42.15% stake. The remaining 8.88% is held by the Line Group affiliate Dongyang Construction Industries. In effect, Chairman Oh Jung-hwa and Director Kong Seung-hyun indirectly control Double Savings Bank through Dongyang Architectural Office.
Dongyang Architectural Office achieved relatively good performance in the mid-2010s, recording annual revenues in the 40 billion won range. Analysts suggest that this was underpinned by work from Line Group. According to audit reports, Dongyang Architectural Office recorded 41.8 billion won in separate revenue in 2015, of which approximately 84.33%, or 35.2 billion won, came from real estate sales advertising agency fees and design income from Line Group affiliates. Since 2017, over 99% of the firm's separate revenue has been generated from Line Group affiliates.
Analysts also suggest that Dongyang Architectural Office was able to secure the funds to purchase its stake in Double Savings Bank thanks to profits made from Line Group affiliates. According to audit reports, the acquisition cost of the Double Savings Bank stake for Dongyang Architectural Office was 26.8 billion won.
Dongyang Architectural Office's business activities have decreased significantly recently. Last year, its separate revenue was only 441.5 million won, and even that was entirely earned from Line Group affiliates. There is no legal issue here, as the 'Monopoly Regulation and Fair Trade Act (Fair Trade Act)' only imposes penalties for funneling work to companies that are part of a corporate group subject to disclosure. Line Group was not a corporate group subject to disclosure until last year. Furthermore, unless transactions are made under 'significantly favorable conditions,' they do not constitute illegal internal trading.
In addition to Double Savings Bank, Dongyang Architectural Office holds a 29.13% stake in Dongyang Construction Industries and a 100% stake in A-One Service. Dongyang Construction Industries is one of Line Group's major affiliates, which recorded 156.7 billion won in revenue last year.
As of the end of last year, the shareholders of Dongyang Construction Industries consisted of: Dongyang Innotech (52.21%), Dongyang Architectural Office (29.13%), Chairman Kong Byung-hak (8.54%), and Director Kong Seung-hyun (1.77%). The largest shareholder of Dongyang Innotech is Director Kong Seung-hyun, who holds a 92% stake. Therefore, Dongyang Construction Industries is also effectively under the control of Director Kong Seung-hyun.
BizHankook contacted Dongyang Architectural Office to hear their stance, but was unable to reach them.
Possibility of a spin-off for Line Construction?
Chairman Kong Byung-hak's eldest son, Kong Seung-hoon (35), CEO of Dongyang Tourism & Leisure, also holds significant stakes in Line Group affiliates, including 100% of Easy E&C, 88.24% of Easy Construction, 85.21% of Line Industry, and 33% of Easy KM. Among these, Line Industry recorded 291 billion won in revenue last year, the second-highest among affiliates after Line Construction.
The business world is keeping a close eye on the core affiliate, Line Construction. With 529.7 billion won in revenue and 191.3 billion won in operating profit last year, Line Construction has the largest scale within the group and exerts significant influence. It has subsidiaries including Line Development, Line L-Housing, Line Housing, Line & Prime, and The One Construction.
The largest shareholder of Line Construction is Kong Byung-tak (60), chairman of Line Construction and a cousin of Chairman Kong Byung-hak. As of the end of last year, the shareholding structure was: Chairman Kong Byung-tak (55.50%), Easy Construction (30.33%), Line Cultural Foundation (5.00%), Line Industry (3.53%), and Dongyang Architectural Office (0.25%). The structure appears to be one where Chairman Kong Byung-hak controls Dongyang Construction Industries, while Chairman Kong Byung-tak controls Line Construction. It is rumored that when the Fair Trade Commission designated Line Group as a corporate group subject to disclosure, it struggled with deciding whether to set Chairman Kong Byung-hak or Chairman Kong Byung-tak as the "same person" (the de facto head of the group).
Some in the business sector mention the possibility of a spin-off of Line Group affiliates. The idea is that since Chairman Kong Byung-tak is the largest shareholder of Line Construction, a spin-off could center around Line Construction. The issue, however, is that Easy Construction holds a 30.33% stake in Line Construction. Easy Construction is majority-owned by Chairman Kong Byung-hak's eldest son, CEO Kong Seung-hoon.
To proceed with a spin-off, Easy Construction would need to dispose of its stake in Line Construction. According to the enforcement decree of the Fair Trade Act, shares owned by relatives must be less than 10% (less than 3% for listed companies). Additionally, Double Finance Loan is 50% owned by Dongyang Construction Industries and 50% by Line Construction, requiring a resolution of that cross-ownership as well.
The group could also choose to continue with family management like SK Group without spinning off. In the case of SK Group, Chairman Chey Tae-won has worked alongside his cousins, such as Chey Shin-won, honorary chairman of SK Networks, and Chey Chang-won, chairman of the SK Supex Council, with each managing different affiliates. Similarly, Line Group could adopt a structure where each member of the owner family takes charge of managing different affiliates.
Now that Line Group has joined the ranks of large corporations, it cannot avoid public scrutiny. Given its significant influence, especially in the Honam region, there are many watching the direction of its management control. This is why interest is focused on whether Line Group will continue its current family management or move toward a spin-off.