Samsung Life Insurance and Samsung Fire & Marine Insurance have sold some of their Samsung Electronics shares through block deals. The two companies said on May 30 that their move was intended to avoid risks related to the Act on the Structural Improvement of the Financial Industry.
The act limits the combined shareholdings that financial subsidiaries of a business group can have in a non-financial subsidiary to 10 percent. The two insurance companies owned a total of 9.67% of Samsung Electronics as of the end of last year, but the ratio is likely to go up to 10.45% after this year’s planned share retirement by Samsung Electronics. Under the circumstances, the insurance companies chose to sell some of their shareholdings to keep their stakes below 10%.
Samsung Life Insurance sold 22.98 million shares at a price of 48,800 won per share, while Samsung Fire and Marine Insurance sold 4.01 million shares at the same price. The total proceeds from the sales were estimated at about 1.32 trillion won.
After the deals, Samsung Life’s stake in Samsung Electronics fell to 7.92%, while that of Samsung Fire and Marine dropped to 1.38%.
Samsung Life Insurance is expected to further reduce its stakes in Samsung Electronics as it has been under pressure from the Korea Fair Trade Commission (KFTC) and the Financial Services Commission (FSC) to do so.
In a meeting with the CEOs of the 10 largest South Korean business groups on May 10, KFTC Chairman Kim Sang-jo urged Samsung Electronics vice chairman Lee Jae-yong to make a decision regarding the group’s governance structure.
“There may be various ways Samsung can reform its governance structure, but the government cannot force a decision,” he said, adding, “Still, what is clear is that Samsung’s current governance structure is not sustainable and now is the time for action.”
FSC Chairman Choi Jong-ku also remarked last month that every financial company with a shareholding issue should take measures before the amendment of the Insurance Business Act.
According to the Insurance Business Act, the shareholding that a financial company belonging to a business group can have in a sister non-financial company cannot exceed 3% of its total assets. This means Samsung Life Insurance’s shareholdings in Samsung Electronics cannot exceed approximately 6.4 trillion won (US$5.7 billion). The insurance company’s current shareholdings cause no problem if their value is assessed on an acquisition cost basis, as the company acquired Samsung Electronics shares at about 53,000 won (US$47) per share. Yet a revision bill is currently pending in the National Assembly to enforce evaluation of shareholdings based on their market value. If the bill is approved, Samsung Life Insurance would have to sell Samsung Electronics shares worth 20 trillion won (US$18 billion).
In the meantime, some analysts point out that the KFTC and the FSC are going too far in pressuring Samsung. “The purpose of the shareholding threshold under the Insurance Business Act is to ensure soundness of insurance companies, and it cannot be said that Samsung Life Insurance is exposed to insolvency risks because of its large stakes in Samsung Electronics,” an analyst said, adding, “In the end, it seems that the government pressure is to urge the Samsung Electronics vice chairman to choose either Samsung Electronics or Samsung Life Insurance.”