DB Group's holding company, DB Insurance, is serving as a cash cow for the founding family. It is estimated that Chairman Kim Jun-ki, who founded the company, his son Kim Jun-ki, the chairman of DB Group, and his daughter Kim Joo-won, the vice chairman of DB Group, have received dividends of over 130 billion won from DB Insurance in the past three years.
As the founding family has secured sufficient cash through DB Insurance, there are calls for them to directly invest funds for DB Group's most pressing issue: the transition to a holding company structure. Converting to a holding company structure will incur a cost of at least 200 billion won. DB Group has received multiple notices regarding the transition to a holding company but has faced criticism for evading this through methods like partitioning.
◇ Founding family's dominance solidified, but management succession still ongoing
According to the insurance industry on the 22nd, DB Group's governance structure is divided into two branches: financial subsidiaries and manufacturing subsidiaries. Among these, the top company in the financial sector is DB Insurance. Chairman Kim Jun-ki holds 5.94% of DB Insurance shares, Chairman Kim Nam-ho holds 9.01%, Vice Chairman Kim Joo-won holds 3.15%, and the DB Jun-ki Culture Foundation holds 5%. Since DB Insurance has subsidiaries like DB Life Insurance, DB Financial Investment, and DB Capital, controlling DB Insurance means that all financial subsidiaries can be indirectly controlled. Although the founding family's equity stake is 23.1%, the only shareholder with more than 5% is the National Pension Service, which does not pose a significant issue for their control.
DB Insurance is expanding dividends to enhance corporate value and is serving as a pillar for the founding family. Last year, the company distributed a record dividend of 408.2 billion won (6,800 won per share). As a result, founding Chairman Kim Jun-ki received 28.6 billion won, Chairman Kim Nam-ho received 43.3 billion won, and Vice Chairman Kim Joo-won received 15.1 billion won. In total, the three received dividends amounting to 58.9 billion won in 2022, 67.9 billion won in 2023, and 87.1 billion won last year, totaling 135 billion won over the past three years. Considering that DB Insurance's shareholder return target for this year is 35%, higher than last year's 23%, there are projections that the founding family could receive dividends exceeding 100 billion won in a single year.
However, the management succession has not yet been finalized. Theoretically, if founding Chairman Kim Jun-ki were to receive the 5% equity held by the DB Jun-ki Culture Foundation, he would become the largest shareholder (10.94%). Chairman Kim Nam-ho needs to inherit additional equity to fully secure control over the financial subsidiaries.
It is not unusual for the 80-year-old founding Chairman Kim Jun-ki to increase equity in the subsidiaries. In 2022, he received equity from DB Inc, which serves as a holding company for manufacturing subsidiaries, from the DB Jun-ki Culture Foundation. As a result, as of the end of last year, his equity stake in DB Inc was 15.91%, which is not significantly different from Chairman Kim Nam-ho's 16.83%. This is why it is hard to consider the management succession in the manufacturing sector to be complete. At the time, there were speculations that founding Chairman Kim Jun-ki and his daughter Vice Chairman Kim Joo-won entered into a share battle together.
The management succession of DB Group was more of a response to a crisis than a thoroughly prepared process. This sudden generational change occurred when founding Chairman Kim Jun-ki resigned in 2017 due to allegations of sexual assault against a housekeeper. DB Group then appointed Lee Geun-young, a former advisor at Dongbu Insurance, as chairman to maintain a professional management system, and began the second-generation management with Chairman Kim Nam-ho's appointment in 2020.
◇ Funding secured by DB Insurance, will it be used for the holding company transition?
DB Group's manufacturing subsidiaries also do not pose significant issues for the founding family's control. The top company in the manufacturing sector is DB Inc, in which the founding family's equity stake is 42%. DB Inc is the largest shareholder, holding 18.6% of the shares in DB HiTek, a system semiconductor company, and DB HiTek oversees subsidiaries such as DB Global Chip, Dongbu Steel, DB Technology, and DB Metal.
The issue is that DB Group could be required to transition to a holding company at any time. According to the Fair Trade Act, if the total assets exceed 500 billion won and the aggregate value of subsidiary shares exceeds 50% of the total assets, a forced conversion to a holding company will occur. If the stock price of DB HiTek, a subsidiary of DB Inc, rises to a certain level, it indicates that DB Inc will be converted into a holding company.
Once converted into a holding company, it must retain more than 30% of its equity in DB HiTek within two years. This means that DB Inc needs to acquire an additional approximately 12% equity in DB HiTek. Considering that the market capitalization of DB HiTek is 1.78 trillion won, at least over 210 billion won will be needed. However, DB Inc’s cash assets are at a level of around 70 billion won.
For this reason, DB Group has been accused of deliberately evading the transition to a holding company. In 2021, when DB Group was notified of the transition, it partitioned the design division of DB HiTek as a subsidiary. This led to a sharp decline in DB HiTek's stock price, allowing it to escape the requirements for the transition. Among shareholders, there were criticisms that the stock price of DB HiTek was artificially suppressed to avoid the transition. DB Group was notified of the transition again in May of last year, but was excluded from the requirements again due to a drop in DB HiTek's stock price.
Some argue that, since the founding family has secured sufficient cash flow through DB Insurance, they should directly tackle the transition to a holding company. It is suggested that the founding family should invest funds directly to purchase equity in DB HiTek. Methods such as DB Inc conducting a capital increase and the founding family participating in it are being discussed.
It is not unusual for the founding family to inject funds into the company. In 2015, when DB Metal entered a workout system, Chairman Kim Nam-ho bore 35.3 billion won of a 57.1 billion won capital increase as part of a management normalization agreement. Chairman Kim Nam-ho also engaged in a conversion of a 10 billion won loan he had lent to DB Metal into equity.