As Lotte Group has completed sales of its financial affiliates, attention is focusing on how Samsung Group will handle its financial affiliates.
The group’s governance structure can be changed if Samsung C&T Corp. sells off the Samsung Electronics Co. shares owned by its financial affiliates. Accordingly, the government’s policy on separation of banking and commerce will affect Samsung Group’s governance structure.
Samsung Life Insurance Co. holds an 8.8 percent stake in Samsung Electronics as of the end of June, while Samsung Fire & Marine Insurance Co. also owns a 1.5 percent stake in the firm, according to the group’s semi-annual report submitted to the Financial Supervisory Service on Sept. 1. However, an amendment to the Insurance Business Act, which has been pending at the National Assembly, limits a financial affiliate’s ownership of stocks in sister firms, in terms of the market value of the stocks, to 3 percent of its own total asset.
The family of the largest shareholder of Samsung Group controls the group’s affiliates through Samsung C&T, according to a recent report by Korea Investors Service Co. (KIS). Samsung C&T indirectly owns stakes in Samsung Electronics through its control of Samsung Life.
Therefore, the government’s policy on separation of banking and commerce will determine how much stakes Samsung Life and Samsung Fire can hold in Samsung Electronics. The government has been urging Samsung Group to reduce Samsung Electronics shares held by its affiliates as it espouses the principle of separation of banking and commerce that prohibits financial capital and industrial capital from owning each other.
Under the proposed revision bill for the Insurance Business Act, an insurer can own marketable securities of its sister companies, based on their market prices rather than acquisition costs, up to 3 percent of its total asset or 60 percent of its total equity capital. It is required to sell off the securities exceeding the upper limit within five years. The sale period can be extended by two more years upon approval of the Financial Services Commission (FSC).
Earlier, Samsung Life sold 22,980,000 shares (0.35 percent) in Samsung Electronics at the end of May last year in compliance with the Act on the Structural Improvement of the Financial Industry that bans financial units of business groups from holding more than a 10 percent stake in non-financial units.
A KIS official said, “Currently, the stakes in Samsung Electronics owned by Samsung Life and Samsung Fire are essential for Samsung Group owner family’s control of Samsung Electronics. In the future, changes in regulations and subsequent changes in Samsung Group’s governance structure can have a significant impact on the status and financial stability of an affiliate in the group.”
In addition, analysts are paying attention to whether the National Pension Service (NPS), which holds more than a 5 percent stake in Samsung Life and Samsung Fire, will exercise its influence. The NPS has been increasingly expanding intervention in the management of private firms after the Moon Jae-in administration took office. The NPS has been aggressively exercising the shareholder rights since the introduction of the Stewardship Code at the end of July last year.