Heir to counteract new law governing Samsung Life

Samsung Life Insurance headquarters in Seoul / Korea Times file

By Park Jae-hyuk

After the death of Samsung Group Chairman Lee Kun-hee, Sunday, the proposed revision to the Insurance Business Act has emerged as the most important variable in Samsung Electronics Vice Chairman Lee Jae-yong's plan to inherit control of the group.

Dubbed the "Samsung Life Insurance law," the revision bill was proposed by two ruling party lawmakers ― Rep. Park Yong-jin and Rep. Lee Yong-woo ― with the intention of forcing the life insurer to sell its stake in Samsung Electronics, the nation's largest company in terms of market cap.

This came as an apparent measure to pressure the Samsung heir, who has controlled the electronics affiliate indirectly using his 17.3 percent stake in Samsung C&T which holds a 19.3 percent stake in Samsung Life which holds an 8.5 percent stake in Samsung Electronics.

As of the end of the second quarter of this year, the market value of the Samsung Electronics stocks owned by Samsung Life reached 26.8 trillion won ($24 billion), accounting for 9.2 percent of the insurer's total assets. Although the current law prohibits an insurer from holding more than 3 percent of their affiliates' stocks, Samsung Life has been able to maintain the Samsung Electronics shares because their book value is 540 billion won.

The revision bill states that an insurer's asset prices should be calculated according to market value ― not book value ― when calculating the cap of the firm's total capital assets such as stocks and bonds.

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The passage of the bill is highly likely to gain momentum, due to the ruling Democratic Party of Korea dominating seats in the 21st National Assembly. Financial Services Commission (FSC) Chairman Eun Sung-soo also agreed with the new law.

If it is passed, Samsung Life will need to sell nearly 20 trillion won worth of Samsung Electronics stocks. This has raised concerns that the vice chairman may lose control of the tech firm.

But analysts said there are still many ways for him to overcome this situation.

"Samsung C&T holds a 43.4 percent stake in Samsung Biologics, so it can acquire Samsung Electronics stocks from Samsung Life using the money it earned from its sale of Samsung Biologics shares to Samsung Electronics," HI Investment & Securities analyst Lee Sang-heon said.

KB Securities analyst Jeong Dong-ik proposed a scenario of spinning off Samsung Electronics into investment and business divisions and merging the former with Samsung C&T.

"As Vice Chairman Lee Jae-yong will remain Samsung C&T's largest shareholder with a 17.3 percent stake, the company would probably not make decisions that can deteriorate its value," the analyst said. "Any possible changes will have a positive impact on Samsung C&T shareholders."

If Samsung C&T takes over Samsung Electronics stocks, its influence over the entire group will become larger. With the expectation of this scenario, both the prices of Samsung C&T's common and preferred stocks skyrocketed a day after the chairman's death.

From the standpoint of Samsung Life shareholders, they can anticipate an increase in dividends because the insurer will make handsome profits after selling its stake in Samsung Electronics. The stock price of Samsung Life therefore rose significantly on the same day. It also soared in mid-June when the revision bill first came to the fore in the 21st Assembly.

Shinyoung Securities analyst Moon Ji-hye, however, did not expect those changes to be made in the near future, saying, "Samsung will probably not carry out the inheritance procedures and the governance overhaul at the same time because the revision to the Insurance Business Act has not been decided yet."

Moreover, the revision bill allows an insurer a five-year grace period. If an insurer gets approval from the FSC, it can postpone the sales of its affiliate stocks by an additional two years.

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