Multinational conglomerate, Samsung Group, faces a difficult decision on its life insurance arm as South Korea’s government presses family-owned conglomerates to spin off financial units, part of President Moon Jae-in’s effort to weaken their power by unravelling their complex and opaque cross-holding structures.
Samsung Life Insurance’s significant stake in core company Samsung Electronics makes it a cornerstone of the group’s structure, and leaves the prospect of selling to an outsider seem unappetising. But the other option of having another group company buy out the insurer’s stake would require massive funding, reported Nikkei Asia Review.
The pressure on the country’s top chaebol increased after Lotte Group said on 27 November 2018 that it would sell two financial units, Lotte Card and Lotte Insurance, to further its shift to a holding company structure. LG and SK Holdings have switched to holding company structures.
The Fair Trade Commission and progressive lawmakers have urged Samsung, the biggest of the chaebol, to adopt a holding company structure, or at least sever the equity relationship between Samsung Life and Samsung Electronics.
South Korean law forbids nonfinancial holding companies from owning stakes in financial companies, a measure intended to keep holding companies from misappropriating funds. Insurers are also barred from holding more than the equivalent of 3% of their total assets in shares of affiliated companies.
Samsung Life, the country’s top life insurer, is the electronics company’s second largest shareholder with an 8.2% stake. Samsung Electronics vice chairman Lee Jae-yong, the group’s heir apparent, and his father, ailing chairman Lee Kun-hee, hold a combined stake of just 4.5% in the electronics company. Selling off the insurer would unavoidably weaken their grip, as would any sale of the electronics maker’s shares on their own.
Some financial market watchers speculate that the group is considering a compromise where a separate Samsung company would buy the insurer’s shares in Samsung Electronics. But based on the electronics company’s share price, purchasing the more than 8% stake would require around $20bn, making the prospects uncertain. A