Short selling of Samsung Electronics shares skyrocketed due to the block deals arranged by Samsung Life Insurance and Samsung Fire & Marine Insurance on May 30 to sell part of their Sumsung Electronics shareholdings.
It is in less than a month that Samsung Electronics has become a short selling target once again. The company conducted stock split on May 4, and then short selling targeting the company exploded.
According to the Korea Exchange, the short selling volume amounted to 2,583,067 shares equivalent to approximately 130 billion won (US$117 million) on May 30, when Samsung Life Insurance and Samsung Fire & Marine Insurance sold their Samsung Electronics shares through block deals. The short selling volume stood at 462,271 shares and about 20 billion won (US$18 million) on the previous day.
The two insurance companies sold the shares to comply with the Act on the Structural Improvement of the Financial Industry. According to the act, financial subsidiaries of a business group cannot have a shareholding of more than 10% in any non-financial subsidiary and should sell extra shares.
The Insurance Business Act also fuels short selling of Samsung Electronics shares. According to this act, an insurance company can have subsidiary stocks and bonds only within 3% of its total assets, with stocks valued on an acquisition cost basis.
Critics have pointed out that the valuation method is a preferential treatment for insurers in that non-insurance financial companies are subject to a market value-based approach. If a market value-based valuation method is applied to insurers, Samsung Life Insurance would have to sell Samsung Electronics shares worth 20 trillion won (US$18 billion).