Groundless Allegations
As a scandal involving President Park Geun-hye and her longtime confidante Choi Soon-sil comes to expand to the bio industry, there are growing speculations over backgrounds of Samsung BioLogics’ rapid growth in business. The speculations are that Samsung BioLogics had received preferential treatments such as the free site offer for the Songdo plant, the participation by President Park Geun-hye in the groundbreaking ceremony and the market debut in connection with Samsung Group allegedly donating money for the establishment of the Mir and the K-Sports Foundation and supporting Choi’s daughter, Chung Yu-ra. However, Samsung denied the allegations. There are controversies over three favors for Samsung BioLogics.
Some raise doubts that the current government provided preferential treatment to promote the bio sector as part of Samsung Group’s efforts to reorganize the governance structure with Samsung Electronics Vice Chairman Lee Jae-yong as the center. Samsung pointed out the growth of the bio sector, which is a core business of Samsung C&T, the de-facto holding company of the group, as one of the grounds that the merger ratio of Samsung C&T and Cheil Industries was appropriate last year.
However, Samsung pushed into the bio market in earnest in the previous government. The group selected biotechnology as one of the five new businesses to foster in 2010 and officially entered the market in 2011. The plan already came up when Chairman Lee Kun-hee led the group. In addition, Samsung BioLogics was offered a free lease of the plant site for 50 years, which was the most controversial, during the Lee Myung-bak administration. In particular, Song Young-gil of the main opposition New Politics Alliance for Democracy, the then mayor of Incheon, chose Samsun as a foreign investment firm.
At that time, there was no company to open an office in Songdo since the Songdo site is almost a wasteland. When Samsung started construction of the plant in May 2011, there were no buses running around the site and employees were stamping their feet around the closing hour, according to insiders. Samsung attracted the branch line of 92 after making several proposals to Incheon Metropolitan City for two years.
To be sure, there has been criticism that it is a serious problem that Quintiles, a foreign shareholder, sold its stake as soon as the minimum holding period of five years was expired. However, some say that we need to distinguish between institutional loophole and preferential treatment. Previously, the controversy arose over Hyundai Department Store’s free lease and a company was caught for putting up foreign investors. So, the Ministry of Trade, Industry and Energy is currently revising the law to increase the minimum stake owned by foreign investors to 30 percent.
There is another controversy over President Park attending the groundbreaking ceremony of Samsung BioLogics’ plant 3 in December last year. In this regard, a senior official from Samsung said, “The president had attended major events in person in order to promote the corporate investment from before. This can be understood in the same context.”
In fact, President Park frequently appeared corporate events. In addition to creative economy & innovation centers, she participated in LG Group’s groundbreaking ceremony for LG Science Park in the Magok Industrial Complex in 2014 and Samsung Electronics’ groundbreaking ceremony for the Pyeongtaek semiconductor plant and SK Hynix’s ceremony for the M14 semiconductor plant in 2015. This year, Park visited Hyundai Motor’s Asan plant and took part in Toray Advanced Materials Korea’s groundbreaking ceremony for the Gumi plant.
Some said that an operating profit is an essential prerequisite for listing on the stock market in advanced countries and casted a doubt on the process of Samsung BioLogics’ process to go public. They said that Samsung exercised the invisible power to list its subsidiary, Samsung Bioepis, on the domestic stock market because it was needed at the moment when it delayed its Nasdaq debut in the U.S.
However, the Korea Exchange (KRX) has a different explanation. Kim Sung-tae, manager of the KRX, said, “After news reports that Samsung Bioepis would be listed on Nasdaq came out in June last year, we looked back over our rigid standards for listing. In a bid to vitalize the domestic stock market, we visited Samsung several times to make request for the listing.”
At that time, Samsung was already eligible to enter both Nasdaq and Kosdaq even it was in deficit. The New York Stock Exchange (NYSE) allows businesses in the red to be listed. An official from the industry said, “Considering the fact that the percentage of foreign investors’ stake in Samsung BioLogics rose from 3.5 percent on the first day of trading to the current 11.2 percent, it is evident that the company has no big problems with its business value. We should thoroughly investigate the alleged links with Choi but clear up all the facts.”