News Regulations01 Jun 2018

South Korea:Samsung insurance units sell electronics stocks

01 Jun 2018

Samsung Group's two insurance firms have said that they will sell $1.3 billion worth of stock in the conglomerate's biggest earner, Samsung Electronics, to maintain regulatory compliance, reports Reuters.

Samsung Life Insurance and Samsung Fire & Marine Insurance separately said their electronics affiliate’s current policy of cancelling its own shares to raise the value of investors’ holdings risks pushing their own holdings beyond regulatory limits.

The two insurers have sold some of their Samsung Electronics shares through block deals, reports Business Korea. They said that their move was intended to avoid risks related to the Act on the Structural Improvement of the Financial Industry.

The Act limits the combined shareholdings that financial subsidiaries of a business group can have in a non-financial subsidiary to 10%. The two insurance companies owned a total of 9.67% of Samsung Electronics as of the end of last year, but the ratio is likely to go up to 10.45% after this year’s planned share retirement by Samsung Electronics. Under the circumstances, the insurance companies chose to sell some of their shareholdings to keep their stakes below 10%.

The total proceeds from the sales were estimated at about KRW1.32 trillion ($1.22 billion). Samsung Life sold 22.98 million shares, while Samsung Fire and Marine sold 4.01 million shares at the same price of KRW48,800 per share.

After the deals, Samsung Life’s stake in Samsung Electronics fell to 7.92%, while that of Samsung Fire and Marine dropped to 1.38%.

Pressure

Samsung Life is expected to further reduce its stakes in Samsung Electronics as it has been under pressure from the Korea Fair Trade Commission (KFTC) and the Financial Services Commission (FSC) to do so.

In a meeting with the CEOs of the 10 largest South Korean business groups on 10 May, KFTC Chairman Kim Sang-jo urged Samsung Electronics vice chairman Lee Jae-yong to make a decision regarding the group’s governance structure.

“There may be various ways Samsung can reform its governance structure, but the government cannot force a decision,” he said, adding, “Still, what is clear is that Samsung’s current governance structure is not sustainable and now is the time for action.”

FSC Chairman Choi Jong-ku also said last month that every financial company with a shareholding issue should take measures before the amendment of the Insurance Business Act.

According to the Insurance Business Act, the shareholding that a financial company belonging to a business group can have in a sister non-financial company cannot exceed 3% of its total assets. This means Samsung Life’s shareholdings in Samsung Electronics cannot exceed approximately KRW6.4 trillion. The insurance company’s current shareholdings cause no problem if their value is assessed on an acquisition cost basis, as the company acquired Samsung Electronics shares at about KRW53,000 per share.

Yet an amendment Bill is currently pending in the National Assembly to enforce evaluation of shareholdings based on their market value. If the Bill is approved, Samsung Life would have to sell Samsung Electronics shares worth KRW20 trillion.

 

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