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Samsung Group Catches Breath from Governance Reform Pressures
Insurance Business Act Unlikely to Be Revised This Year
Samsung Group Catches Breath from Governance Reform Pressures
  • By Yoon Young-sil
  • December 4, 2018, 10:34
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The amendment to the Insurance Business Act pending in the National Assembly targets the 580 million shares of Samsung Electronics Co., or a 7.92 percent stake, owned by Samsung Life Insurance Co.

As the pending amendment to the Insurance Business Act, which targets Samsung Group, is unlikely to be passed by the end of this year, the group now has time to catch its breath. In addition, government pressure for corporate governance reform would be eased when the court grants an injunction filed by Samsung BioLogics Co. to suspend the execution of the SFC’s ruling. The first hearing for the case will be held on Dec. 19.

According to the political community on Dec. 2, the amendment to the Insurance Business Act initiated by Rep. Park Yong-jin of the ruling Democratic Party in July is unlikely to be passed before the end of the year. The amendment has targeted 580 million shares of Samsung Electronics Co., or a 7.92 percent stake, owned by Samsung Life Insurance Co. It bans insurance firms from having a stake in an affiliate of more than 3 percent of its assets. The measure would change accounting rules so that such holdings would be valued at their current price instead of their acquisition cost. The amount of Samsung Life’s stake in Samsung Electronics totals 500 billion won (US$449.24 million) based on acquisition costs, which doesn’t surpass 3 percent of the insurer’s total assets, or 6.4 trillion won (US$5.75 billion), but the figure goes up to 21.26 trillion won (US$19.1 billion) based on market prices as of Nov. 30. In this case, Samsung Life needs to sell off 14.86 trillion won (US$13.35 billion) worth of its stake in Samsung Electronics.

However, as the National Assembly failed to meet the Dec. 2 legal deadline for passing the administration’s 2019 budget bill, it cannot deal with other contentious issues. In addition, the amendment to the insurance business law is not one of the key bills that the ruling party intends to pass during the regular session.

In particular, a senior staff director of the National Policy Committee, which is the standing committee, submitted a negative review report on the bill at the end of last month. The report pointed out that the revision bill should be carefully reviewed as its intended purpose to regulate shareholdings can be attained through regulations at the time of acquisition. It also noted that a compulsory sale of shares that have been legally owned for a long period of time can violate the confidence protection principle and infringe on property rights.

It said, “An insurance company would be required to sell off its stockholdings worth about 16 trillion won (US$14.38 billion). It needs to be reviewed whether a grace period of five years would be enough to ease the shocks that the massive sales of stocks would have on the domestic stock market.”

The Financial Services Commission (FSC) also said in a report, “The impact on multiple stakeholders, including minority shareholders, and the protection of investors’ confidence in regulations need to be considered overall.”

However, Lee Hak-young, another lawmaker of the Democratic Party who has a similar inclination with Park, recently proposed a revision to the law on supervision of financial groups. According to the proposal, financial companies are required to sell off the excess shareholdings when they hold more than a 5 percent stake in non-financial companies.