Targeting Samsung Group
The Minjoo Party of Korea, which is the main opposition party in South Korea, tabled a series of bills for economic democratization targeting conglomerates such as the Samsung Group.
One of the bills moved again by former floor leader Lee Jong-gul is for revising the Insurance Business Act. The purpose of this bill is to change insurers’ asset management ratio calculation criterion from acquisition cost to market price. At present, an insurer in South Korean can have subsidiary shares equivalent to 3% or less of its total asset. When acquisition cost-based calculation is applied, Samsung Life Insurance’s subsidiary shares do not exceed 3% of its total asset as the acquisition cost regarding Samsung Electronics is 53,000 won. However, in the case of market price-based calculation, the ratio becomes much higher than 3% because 1,464,000 won is applied instead as the July 12 closing price of Samsung Electronics shares. In this case, Samsung Life Insurance has to sell approximately 9% of its subsidiary shares, most of which are Samsung Electronics shares, with Samsung Life Insurance’s total asset being at 200 trillion won or so.
“It is not impossible for Samsung Life Insurance to reduce the ratio but it seems that few are ready to take it,” said Oh Jin-won, research analyst at Hana Financial Investment, adding, “Then, division of Samsung Electronics is likely to be accelerated by the Capital Markets Act and the act banning cross-shareholding.” Samsung Electronics cannot purchase treasury stocks directly from Samsung Life Insurance according to the Capital Markets Act and the other act is violated in a case where Samsung SDS takes the shares.
The opposition party moved three more bills to accelerate the reshaping of the Samsung Group’s governance structure. One is to put a limit on voting rights with respect to subsidiary shares owned by non-profit foundations and another is a commercial law amendment that bans new share allotment to treasury stocks in the event of holding company conversion based on split-off. The other is to impose a corporate tax in the case of violation of the amendment.
“In the past, Korean Air and SK raised their share ratios without spending a dime in converting to holding companies, but solidification of a corporate governance structure based on that method will become impossible once at least one of the two bills is passed,” the opposition party explained. South Korean conglomerates are nervous about the potential voting rights limitation as well. As of now, the Samsung Foundation of Culture owns 4.68% of Samsung Life Insurance shares and Samsung Life Public Welfare Foundation owns 2.18% of Samsung Life Insurance shares. In addition, the Chung Mong-Koo Foundation has 4.46% of Hyundai Glovis shares and the Lotte Scholarship Foundation has 8.69% of Lotte Confectionery, 6.17% of Lotte Chilsung and 21% of Daehong Communications.