The government and ruling party are pushing a bill as party policy to allow chip fabs built in the Honam region to attract external investment. The measure aims to speed up projects by easing a rule that requires a holding company's grandsubsidiary to own 100 percent of a great-grandsubsidiary.
According to political circles on the 13th, Rep. Kim Won-yi of the Democratic Party of Korea, who served as the ruling party's chief secretary on the National Assembly's Trade, Industry, Energy, SMEs and Startups Committee during the first half of the assembly's term, has prepared a partial amendment to the Special Act on Strengthening the Competitiveness and Protection of National Advanced Strategic Industries containing this content. Kim plans to sponsor the bill on the 14th.
In a phone call with The Seoul Economic Daily, Kim said, "Under the existing law, a holding company's grandsubsidiary must own 100 percent of a great-grandsubsidiary, so it must bear the entire investment amount." He added, "Considering the southwestern chip cluster and the Cheongju fab in North Chungcheong, hundreds to thousands of trillions of won must be raised single-handedly, which creates an excessively large burden, and this aims to resolve that."
Kim's bill is party policy reached after consultation with the Ministry of Trade, Industry and Energy and other relevant ministries. It is one of the key bills the Democratic Party prepared to support the "Three Major Mega Projects of the Republic of Korea." He explained that "the content reflects both the ministry's views and the Democratic Party's views."
The amendment revises Article 34, Paragraph 2 of the National Advanced Strategic Industries Act to allow a holding company's grandsubsidiary under the Fair Trade Act to own only 50 percent of a great-grandsubsidiary. Previously, it had to hold a 100 percent stake. However, the great-grandsubsidiary would be required to locate its main office in a region outside the capital area (Seoul, Gyeonggi and Incheon), minimizing side effects arising from the deregulation. The provision is designed with use in non-capital-region investments in mind, including the South Jeolla-Gwangju chip cluster.
Special provisions for industrial complexes will also be newly established. National strategic technology firms would be able to confirm leases in advance before factory completion. Previously, land and factories within industrial complexes could only be leased or disposed of after completion. The amendment also includes a provision for issuing advanced-company confirmation certificates under the name of the Minister of Trade, Industry and Energy. This opens the way to attract investment from the advanced strategic industry fund within the National Growth Fund.
If the amendment passes, SK hynix (000660.KS) is expected to be a representative beneficiary. SK hynix is a grandsubsidiary of SK Inc., the holding company of SK Group. When SK hynix establishes a special purpose company (SPC) to build a fab, it would be able to cover about half of the investment cost with funds received from strategic investors (SI) or financial investors (FI) such as the National Pension Service. The chip industry says that as facility construction costs rise sharply due to the increasing difficulty of process miniaturization, it is becoming increasingly hard for companies to shoulder the entire investment amount alone. While there is room to invest for now on the upswing of the memory chip cycle, the burden of facility investment becomes excessively large during downturn cycles that must be endured like a harsh winter. Beyond the chip industry, other companies such as LG Energy Solution (373220.KS) — a grandsubsidiary of LG Corp. (a subsidiary of LG Chem) — will also be able to secure external funding when investing in provincial areas.
The government and ruling party plan to pass the amendment during the regular assembly session beginning in September to advance the projects swiftly. If the bill passes, the "Three Major Mega Projects of the Republic of Korea," which the government is pursuing with utmost effort, are also expected to gain further momentum. For the government, it is seen as a two-for-one benefit, as it can redirect chip companies' overseas investment back to Korea while also promoting "regional revitalization."
Han Byeong-do, the Democratic Party's acting leader and floor leader, expressed his commitment to support at a party-government meeting held at the National Assembly that day, saying, "Since the party has formed a special committee to build a dedicated support system for the Three Major Mega Projects, we will firmly support legislation and budget." He added, "We will process major legislation, including the Mega Special Zone Act, by the end of the year."
