Samsung Life Insurance Co. might be able to sell its 7.55 percent stake of Samsung Electronics. Until now, politicians has pointed out special favors of the Insurance Business Act. In this regard, the company has said there will be no buyer when it sells its Samsung Electronics’ shares because the sale price will reach up to 26 trillion won (US$22.87 billion). Accordingly, the ruling Democratic Party proposed the revised bill of the Capital Market Act that allows companies to buy back their shares when there are inevitable reasons including the failure of finding a new buyer.

When the revised bill is passed, Samsung Electronics will be able to secure “the retreat” that can purchase Samsung Life’s stake as treasury stocks. It will also cut off the link between Samsung Life, which is at the height of Samsung’s corporate governance, and Samsung Electronics.

Park Yong-jin of the ruling Democratic Party of Korea said he proposed the revised bill of the Capital Market Act on August. Under the revised bill, companies can purchase shares from particular shareholders when the enactment and revision of this law or other laws and regulations force particular shareholders to sell their shares but they cannot find a buyer.

Park said it is the law for Samsung Life. When the Insurance Business Act is revised or the Financial Services Commission changes supervision regulations on the insurance business, Samsung Life needs to sell its stake in Samsung Electronics. In this case, Samsung Electronics should sell its treasury stocks immediately in order not to have impact on the market, instead of buying its stakes in Samsung Life has as treasury stocks.

In addition, about 2.1 million policyholders of Samsung Life’s with-profit insurance products will get profits from the sale of more than 4 trillion won (US$3.52 billion) according to the price of Samsung Electronics stocks – 2 million won (US$1,759) per person.

The Insurance Business Act prohibits insurance companies’ major shareholders and affiliates from holding more than 3 percent of the portion of marketable securities in affiliates’ shareholding limitations. There is a reason why the law has been called the preferential law for Samsung Life. Other financial companies such as banks and securities firms calculate their affiliates’ shareholding limitations based on market prices, while insurance companies calculates it based on the acquisition costs. 

Samsung Life bought Samsung Electronics stocks for 53,000 won (US$47) per share in the past and the market price of Samsung Electronics stocks closed at 2,231,000 won (US$1,962) as of the 11th. The revised bill of the Insurance Business Act proposed last year requires insurance companies to change the standard of asset management rates from acquisition costs to market prices and sell their stocks by lots within five years. Under the current law, the amount of Samsung Life’s asset management total 5.67 trillion won (US$4.99 billion) based on acquisition costs but the figure goes up to 32.11 trillion won (US$28.24 billion) based on market prices. When the asset management regulations in the Insurance Business Act are applied, the asset management limit of Samsung Life is 5.97 trillion won (US$5.25 billion) and the company needs to sell 26.44 trillion won (US$23.23 billion) worth of stocks that exceeded the limit.

When Samsung Life tries to sell its Samsung Electronics shares in large quantities, there is no Samsung’s affiliates that can purchase the stake due to the new law banning cross-shareholdings. This is why the FSS couldn’t change supervision regulations on the insurance business.

However, securities companies say the revised bill will help Samsung Life find a buyer. Yoon Tae-ho, analyst at Korea Investment & Securities, said, “It is the practical proposal that help Samsung Life find ways to sell its stake in Samsung Electronics. However, a decreasing share ratio of Samsung Electronics will be another concern for Samsung.”

By: DocMemory
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