Stepstone for Financial Holding Company
On September 1, the stock price of Samsung Card rose by 15.03% to close at 50,900 won per share. The price, which remained below 50,000 won per share for the past two months, began to rise in the morning of that day and reached a 52-week high of 53,200 won per share during that trading session. Shinhan Investment, Daishin Securities and Dongbu Securities adjusted their stock price targets for Samsung Card to way over 50,000 won per share. Likewise, the share prices of Samsung Life Insurance and Samsung Securities rose by 2.91% and 2.43%, respectively.
The 15.03% increase is because of analysis that Samsung Card’s decision to buy back its own shares for the first time in four years will accelerate the Samsung Group’s adoption of a holding company structured led by Samsung Life Insurance. On August 31, Samsung Card had a board of directors meeting and decided to buy back 5.79 million shares, which are equivalent to 5% of the total and worth 253.6 billion won.
Stock market experts have come up with two scenarios with regard to the share buyback, interpreting it as a preparation for changing the corporate governance structures of the financial arms of the Samsung Group.
The first one is capital reduction, that is, Samsung Life Insurance as the largest shareholder in Samsung Card buying 15.9% of Samsung Fire & Marine Insurance treasury shares by using the money left after capital reduction. At present, Samsung Card has a sizeable capital as a result of its merger with Samsung Capital and capital expansion. Its total asset amounts to 19 trillion won and its capital totals 6.6 trillion won, one trillion won more than Shinhan Card’s, meaning the company needs to lower its capital to an appropriate level.
If Samsung Card halves its capital, Samsung Life Insurance can be given 2.4 trillion won. Then, Samsung Life Insurance can buy the 7.55 million treasury shares owned by Samsung Fire & Marine Insurance, which cost 2.2 trillion won in total, and can raise its ratio of shareholding to 30%, the minimum requirement for a subsidiary of a financial holding company.
The other scenario has to do with Samsung Card’s assistance in the spin-off of Samsung Life Insurance. According to a special act that took effect last month, a shareholder with a shareholding ratio of 80% or more can decide on short-form merger or division. A shareholding ratio of 80% can be met in the case of additional purchase of the 71.9% Samsung Card shares owned by Samsung Life Insurance or retirement of treasury shares by Samsung Card. Alternatively, Samsung Card can be divided into a business development company and an investment company and the latter can be merged with Samsung Life Insurance for preparation of capital.
“Re-acquisition by Samsung Life Insurance is likely to contribute to expectations for capital efficiency enhancement resulting from a change in group governance structure,” said Daishin Securities research analyst Choi Jeong-wook, adding, “Then, the stock price of the company is likely to rise to a significant extent.”