South Korea may force sale of Samsung shares

By BLOOMBERG

SEOUL • About 15 trillion won (RM52.55 billion) worth of shares in Samsung Electronics Co are poised to flood South Korea’s stock market, as lawmakers and regulators seek to restrict the control that chaebol families exert over their business empires.

Samsung Life Insurance Co is facing pressure to sell its stock in the electronics maker, as President Moon Jae-in’s party prepares to push a bill through Parliament that bans insurance firms from having a stake in an affiliate of more than 3% of its assets. The measure would change accounting rules so that such holdings would be valued at their current price instead of their acquisition cost, putting the stake over the regulatory threshold.

The insurer is a key component in Lee Kun-hee’s family’s control over Samsung Electronics, and a smaller shareholding would weaken its influence over the Suwon-based company.

A stock sale is one of the biggest clouds hanging over the manufacturer, which reports preliminary quarterly earnings today. The new bill, sluggish smartphone sales and an investigation in China over allegations of collusion in chip sales have fuelled a 9% decline in the share price this year, after gaining in the last two years.

“It’s Samsung Life’s Achilles’ heel that’s weighing on Samsung Electronics Co Ltd shares,” said Jeong Dae-ro, an analyst at Mirae Asset Daewoo Co. “There’s no Samsung affiliate that can afford to take over so many Samsung Electronics shares from Samsung Life.”

Samsung Electronics shares were down less than 1% at midday yesterday.

A representative for the company referred the issue to Samsung Life, which said it’s conducting a “comprehensive review to soundly manage its finances in line with changes in the environment”.

Samsung Electronics’ preliminary report is projected to show that sales fell slightly the quarter ended June.

Samsung Life built its stake before 1980 for less than 600 billion won, and its holdings are now worth about 23 trillion won, making it the largest stakeholder after the National Pension Service. Lee holds 20.8% of the insurer, while Samsung C&T Corp, in which his son Jay Y Lee is the largest stakeholder, holds 19.3% of Samsung Life. The heir only has a 0.65% stake in Samsung Electronics.

While C&T is considered a likely buyer for the stake in Samsung Electronics, it would have to convince other shareholders to agree to spending the money, risking a potential backlash.

Most recently, the stock fell 3.5% on May 30 when Samsung Life and Samsung Fire & Marine Insurance Co said they would sell 27 million shares in Samsung Electronics to avoid breaking a separate chaebol regulation.