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Kwak Jae-sun, Chairman of KG Group (Photo courtesy of Yonhap News Agency) |
[Alpha Biz= Kim Young Taek] Allegations surrounding KG Group and private equity firm Cactus Private Equity are intensifying, with minority shareholders raising concerns over a potentially improper succession structure and private benefit transactions involving the controlling family.
At the center of the controversy are claims that Cactus Private Equity has functioned as a “disguised affiliate” of the KG Group, allegedly playing a role in facilitating management succession and private gain for the founding family.
According to industry sources on February 2, minority shareholders filed a complaint with South Korea’s Fair Trade Commission, arguing that KG Group deliberately adjusted Cactus PE’s ownership structure in September last year to avoid being classified as an affiliate under the Monopoly Regulation and Fair Trade Act. They further alleged that the firm was omitted from the group’s large conglomerate designation filings.
Cactus PE’s ownership structure shows that Kwak Jae-hyun, the eldest son of KG Group Chairman Kwak Jae-sun, holds 28.5%, while a group executive owns 1.5%, bringing the total ownership by the controlling family and executives to exactly 30%.
Under Korean antitrust law, companies in which the controlling family holds 30% or more are subject to mandatory affiliate designation. Minority shareholders argue that the ownership was structured to narrowly avoid this threshold.
A representative of minority shareholders said that multiple factors indicate Cactus PE remains under the group’s de facto control, noting that Kwak Jae-hyun served as an internal director from the firm’s inception before stepping down shortly ahead of the conglomerate designation review, and that Cactus PE previously operated out of KG Tower.
Cactus PE has participated as a financial investor in several major KG Group acquisitions, including Dongbu Steel and SsangYong Motor. Minority shareholders suspect that the firm invested with financial backing from the group, later exiting its stakes at significant profits, which were then used as funds for succession.
They also point to a 2023 incident in which Cactus PE allegedly sold shares to realize gains after a stock price surge linked to what was later criticized as misleading disclosures related to battery-pack facility investments, raising so-called “retail investor shakeout” concerns.
Additional criticism has been directed at the process through which KG Zeroin, in which Kwak Jae-hyun is the largest shareholder, became the top shareholder of KG Chemical, the group’s key holding company. Detractors argue that control was expanded through unfair merger ratios between unlisted entities.
In response, KG Group said that Cactus PE does not meet the statutory criteria to be classified as an affiliate, as it does not qualify as the “largest shareholder” under the Fair Trade Act, adding that no legal issues had been identified during Fair Trade Commission filings over the past five years.
Alphabiz 김영택 기자(sitory0103@alphabiz.co.kr)
