Construction site collapse aids owner family
A high-profile collapse at an apartment complex under construction in Incheon by GS Engineering & Construction (E&C) comes as a blessing in disguise for its heir apparent, as its tainted corporate value helped the company chairman give 2 million shares to his son while paying a reduced gift tax, according to industry officials, Thursday.
This enabled GS E&C CEO Huh Yoon-hong, the eldest son of Chairman Huh Chang-soo, to rise to become the construction firm’s second-largest shareholder by holding a 3.89 percent stake in the firm, according to a disclosure by the Financial Supervisory Service.
The GS chairman remains the largest shareholder with a 5.95 percent stake.
The latest stock transfer is seen by critics as part of the group’s move to reduce the gift tax, as GS E&C shares are strapped in a 10-year low after the firm was mired in a nationwide scandal surrounding the poor construction of its apartment complexes.
Last July, the firm’s stock price nosedived to less than 14,000 won ($10.50) per share after pedestrian paths for a community center of the GS-branded apartment complex were flooded by heavy rain. The roof of an underground parking garage at another apartment complex being constructed by the company also collapsed in April the same year.
GS E&C shares were traded at around 23,000 won per share before the repeated scandals. But its value has yet to recover to the previous level and is hovering around 15,000 won.
But the tainted corporate value looks to have come as an opportunity for the GS owner family to tighten their internal control by bequeathing the shares at a lower price, which can reduce their financial burden for the gift tax. Against this backdrop, the GS E&C CEO will also be able to enhance his internal grip on the company ahead of the upcoming regular shareholders’ meeting in March.
“Owner families from major Korean conglomerates generally face an enormous amount of inheritance and gift taxes in stock transfers to the younger generation,” Lee Soo-won, head of an inheritance tax research unit at the Korea Chamber of Commerce and Industry, said. “Korean business leaders’ overall financial burden for the taxes stand at the top level among OECD member countries, so many still seek ways to cut the burden.”