By Kim Tae-gyu
Board members of Samsung Group's financial affiliates convened Thursday to rearrange their cross-holding equities in a bid to speed up the conglomerate's long-overdue mission of completing a holding company structure.
Samsung Life Insurance and Samsung Fire & Marine Insurance each held board meetings to make a decision that the former will purchase Samsung Securities stakes held by the latter worth around 230 billion won.
As a result, Samsung Life's stake in Samsung Securities will rise from 11.2 percent to 19.2 percent, a maneuver to turn Samsung Life, Korea's No. 1 life insurer, into the group's financial holding company.
The move is the latest in Samsung Life's efforts to increase stakes in financial units including Samsung Fire, Samsung Card, Samsung Securities, Samsung Asset Management and Samsung Futures to meet the regulatory requirement of having a 30 percent stake in the companies.
Samsung Futures is a 100-percent owned subsidiary of Samsung Life, which also bought Samsung Asset Management in 2014. It purchased shares of Samsung Card this January to raise its stake to 71.9 percent.
Thursday's board meetings were about completing intra-group stock reshuffling to accelerate the establishment of a financial holding firm.
Thus far, Samsung has been under fire for failing to comply with the country's principle of separating financial from industrial capital. Critics claimed that its non-financial outfits have grown on the back of financial capital such as insurance premiums.
To troubleshoot the problem, Samsung has tried to build a financial holding company.
After that, the group is expected to create a non-financial holding firm where its flagship subsidiary, Samsung Electronics, will take center stage. Then, it is projected to make a third and final holding company to link the two.
Samsung's current governance structure is composed of two lines around Samsung Construction and Trade (C&T), which is controlled by Vice Chairman Lee Jae-yong, the heir apparent of the group as the only son of the bed-ridden Chairman Lee Kun-hee.
Samsung C&T has a 19-percent stake in Samsung Life, which is looking to raise its share in Samsung Fire. It also has a 4.1-percent stake in Samsung Electronics, which owns 20 percent of the shares of Samsung SDI.
More hurdles
However, it would still be a tall task to complete the financial holding company system because Samsung Life has to dispose of a substantial amount of its 7.5-percent stake in Samsung Electronics so that it will no longer be the largest shareholder in a non-financial company.
The easiest way would be to sell a quarter of the 7.5 percent stake to Samsung C&T. However, observers point out that will be a tough job because it would take billions of dollars.
"Samsung C&T has struggled of late so it would face hardships in securing that much money," said Prof. Kim Sang-jo at Hansung University.
Another problem is that the shift to the new system is subject to the approval of the Financial Services Commission, which Kim predicted may reject the idea.
"Samsung Life will realize huge capital gains if it sells off the expensive shares of Samsung Electronics. It will then need to have a plan for how it will share the windfall with the owners of participating policies," Kim said.
"It is not about the regulations. It is more about people's sentiment. If Samsung attempts to keep all the money itself, it would raise the ire of owners of participating policies, which would prompt the financial regulator to reject Samsung's plan."
In the past, Samsung has sold many participating policies, which provide both guaranteed and non-guaranteed benefits.
Board members of Samsung Group's financial affiliates convened Thursday to rearrange their cross-holding equities in a bid to speed up the conglomerate's long-overdue mission of completing a holding company structure.
Samsung Life Insurance and Samsung Fire & Marine Insurance each held board meetings to make a decision that the former will purchase Samsung Securities stakes held by the latter worth around 230 billion won.
As a result, Samsung Life's stake in Samsung Securities will rise from 11.2 percent to 19.2 percent, a maneuver to turn Samsung Life, Korea's No. 1 life insurer, into the group's financial holding company.
The move is the latest in Samsung Life's efforts to increase stakes in financial units including Samsung Fire, Samsung Card, Samsung Securities, Samsung Asset Management and Samsung Futures to meet the regulatory requirement of having a 30 percent stake in the companies.
Samsung Futures is a 100-percent owned subsidiary of Samsung Life, which also bought Samsung Asset Management in 2014. It purchased shares of Samsung Card this January to raise its stake to 71.9 percent.
Thursday's board meetings were about completing intra-group stock reshuffling to accelerate the establishment of a financial holding firm.
Thus far, Samsung has been under fire for failing to comply with the country's principle of separating financial from industrial capital. Critics claimed that its non-financial outfits have grown on the back of financial capital such as insurance premiums.
To troubleshoot the problem, Samsung has tried to build a financial holding company.
After that, the group is expected to create a non-financial holding firm where its flagship subsidiary, Samsung Electronics, will take center stage. Then, it is projected to make a third and final holding company to link the two.
Samsung's current governance structure is composed of two lines around Samsung Construction and Trade (C&T), which is controlled by Vice Chairman Lee Jae-yong, the heir apparent of the group as the only son of the bed-ridden Chairman Lee Kun-hee.
Samsung C&T has a 19-percent stake in Samsung Life, which is looking to raise its share in Samsung Fire. It also has a 4.1-percent stake in Samsung Electronics, which owns 20 percent of the shares of Samsung SDI.
More hurdles
However, it would still be a tall task to complete the financial holding company system because Samsung Life has to dispose of a substantial amount of its 7.5-percent stake in Samsung Electronics so that it will no longer be the largest shareholder in a non-financial company.
The easiest way would be to sell a quarter of the 7.5 percent stake to Samsung C&T. However, observers point out that will be a tough job because it would take billions of dollars.
"Samsung C&T has struggled of late so it would face hardships in securing that much money," said Prof. Kim Sang-jo at Hansung University.
Another problem is that the shift to the new system is subject to the approval of the Financial Services Commission, which Kim predicted may reject the idea.
"Samsung Life will realize huge capital gains if it sells off the expensive shares of Samsung Electronics. It will then need to have a plan for how it will share the windfall with the owners of participating policies," Kim said.
"It is not about the regulations. It is more about people's sentiment. If Samsung attempts to keep all the money itself, it would raise the ire of owners of participating policies, which would prompt the financial regulator to reject Samsung's plan."
In the past, Samsung has sold many participating policies, which provide both guaranteed and non-guaranteed benefits.
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