Vice chief's conviction won't affect Samsung ratings

A Samsung flag flutters next to the South Korean national flag outside of Samsung's Seocho office building in Seoul, Friday, Aug. 25. A court ruled Friday in a bribery case against the billionaire heir to the Samsung empire that fed public anger leading to the ouster of Park Geun-hye as the nation's president. / AP Photo

By Lee Min-hyung

The conviction of Samsung Electronics Vice Chairman Lee Jae-yong will have no major impact on credit ratings of the company and other group affiliates, according to rating agencies Friday.

The Seoul Central Court sentenced Lee to a 5-year prison term on multiple bribery charges. He has been held in custody since this February when the prosecution arrested him for colluding with former President Park Geun-hye to seek business favors by offering 43 billion won ($38 million).

There has been concern that the absence of the company chief may put the brakes on the firm’s key decision-making processes. This has cast group-wide uncertainty at a time when the firm should remain agile to keep up with the rapidly changing tech industry.

However, most rating agencies said the ruling will not substantially affect the company’s business activities.

“The court’s decision has extended the firm’s leadership vacuum, but Fitch believes this will not cast any negative impact on its credit ratings in the short term,” Fitch Ratings analyst Shelly Jang said in an email interview.

“But if the vacuum persists for a longer period of time, this will put the firm’s business agility at risk particularly in its technology- and capital-intensive businesses — such as semiconductors.”

S&P, another ratings giant based in the U.S., also said the court verdict on Lee will not affect the firm’s earnings outlook.

S&P analyst Park Jun-hong said: “Samsung Electronics is setting a record profit since Lee’s arrest in February.”

In this second quarter, the world’s leading smartphone vendor posted a record 14 trillion won in operating profit, driven by surging memory chip demand and its mobile phone sales.

“The months-long leadership vacuum has had little impact on the firm’s earnings,” he said. “As of now, the court verdict is not expected to bring any drastic changes to the company’s business structures.”

“On top of that, the company finalized its biggest-ever merger and acquisition deal with Harman International while Lee was in custody.”

But he also concurred over the negative impact that the potentially long-term leadership vacuum may bring to the company.

“Chances are the company may fail to clinch possible mega deals if Lee has to serve a longer-than-expected prison term in the upcoming Supreme Court’s final verdict, as it is likely to delay the firm’s key strategic decisions,” he said.

Moody’s also said Samsung’s business outlook remains robust and stable, regardless of Lee’s absence.

The ratings agency said its prediction for Samsung remains unchanged from its February report.

“We do not expect any disruptions to Samsung’s operations as a result of the arrest, as the company is managed by an experienced and professional management team, and not dependent on a single individual,” Joe Morrison, Moody’s vice president and senior credit officer, said in the report.

Samsung Electronics shares closed down 1.05 percent or 25,000 won at 2,351,000 won. The benchmark KOSPI closed up 0.11 percent at 2,378.51.