The accounting scandal at Samsung BioLogics is expected to affect the group’s plans for separation of finance and commerce and father-to-son managerial control transfer.
For the Samsung Group, the separation of its financial and non-financial business is an urgent task as the government is pushing for revision of the Insurance Business Act to restrict the stakes that a financial subsidiary of a business group can have in non-financial affiliates.
The central issue for the group concerns Samsung Life Insurance’s 7.92 percent stake in Samsung Electronics.
If the Insurance Business Act is revised as planned by the government, the insurance company will be compelled to reduce its stake in Samsung Electronics to below 3 percent.
But Samsung Life Insurance cannot sell off the excess stake to outside investors because it is related to bolstering Samsung Electronics’ vice chairman Lee Jae-yong’s shaky control of the electronics giant and Samsung Group as a whole.
The best candidate to take over the insurance company’s excess shareholdings in Samsung Electronics is Samsung C&T, which is regarded as the group’s holding company. Samsung C&T’s largest shareholder is Lee, who has secured a 17.08 percent stake through the controversial merger between Samsung C&T and Cheil Industries.
Samsung C&T has a 43.44% stake in Samsung BioLogics, which is valued at 9.6 trillion won based on the company’s closing stock price of 334,500 won per share on Nov. 14 before the trading suspension.
Some stock analysts believe Samsung C&T will dispose of part of its shareholdings in Samsung BioLogics and use the proceeds to take over Samsung Life Insurance’s excess stake in Samsung Electronics.
But this plan would go awry if the trading suspension imposed on Samsung BioLogics following the Securities and Futures Commission’s Nov. 14 verdict against it is prolonged. It is up to Korea Exchange how long Samsung BioLogics is suspended from trading. Trading suspension could last for 15 days or be extended to a year.
If the Insurance Business Act is revised before the trading suspension on Samsung BioLogics is lifted, Samsung Group would be in trouble.
If Samsung Life Insurance is compelled to sell its excess stake in Samsung Electronics to outside investors, Lee’s control of Samsung Electronics and the group as a whole will be seriously weakened. This would be the last things that Lee and the group’s top executives would like to see.
Yet for Samsung Life Insurance itself, selling the excess stake in Samsung Electronics will do it much good. It will not only increase the company’s liquidity but reduce its financial instability stemming from fluctuations in the stock price of Samsung Electronics.
In fact, this is the main reason the government is pushing for the so-called "3% rule," which restricts an insurance company’s stake ownership in its non-financial sister companies to a maximum 3 percent of their assets based on the market value of the shares.
But for Samsung Group, ensuring stability in managerial control is much more important than reducing instability of the life insurance unit.
While there is little chance of Samsung BioLogics being delisted, the trading suspension has increased uncertainty over Samsung Group’s separation of finance and commerce and managerial control transfer.