[Newsmaker] Long-awaited insurance bill reignites debate over Samsung’s ownership structure

[Newsmaker] Long-awaited insurance bill reignites debate over Samsung's ownership structure
Samsung Electronics CEO Lee Jae-yong (Yonhap)

Samsung Electronics CEO Lee Jae-yong (Yonhap)

The long-awaited bill to revise the Insurance Companies Act is reigniting the debate over Samsung’s ownership structure, according to which its insurance arm is the largest shareholder in Samsung Electronics.

The National Assembly introduced the revision bills for the first time in parliament’s National Policy Committee on Tuesday. The bills, proposed in June 2020 respectively by top opposition Democratic Party lawmakers such as Rep. Park Yong-jin and Rep. Lee Yong-woo, were the first bills discussed by lawmakers on the committee, after eight years of public silence towards the like. law proposals.

Critics of Samsung welcomed the news, as lawmakers’ discussion in parliament over the bill, dubbed the “Samsung Life Insurance Act”, could serve as a catalyst for a more transparent shareholding structure for Samsung, which has long depended on the dynastic control of the Lee family. drive growth by adopting a cross-shareholding structure.

“The new revision bill could speed up the process to normalize the strange ownership structure of Korean chaebol,” said Park Sang-in, a professor of public administration at Seoul National University and a senior official with the Citizens’ Coalition for Economic Justice, in a panel discussion in the National Assembly on Wednesday.

“A bold move to simplify the shareholding structure will spur an industry-wide transformation through the revision bill at a time when the manufacturing process is becoming more sophisticated, while calls to achieve carbon neutrality and address income inequality.

However, opponents have raised concerns that ownership of Samsung Electronics could be in the hands of an activist investor seeking to invoke a proxy struggle, resulting in business instability.

But Rep. Lee Yong-woo on Wednesday downplayed such concerns, saying the Foreign Investment Promotion Law stipulates that authorities have the right to stop sales of company shares related to strategic assets such as semiconductor chips.

“It is not scientific to argue that Samsung Electronics will be sold to foreign investors, or that Samsung could be prone to administrative disputes,” said Rep. Lee.

This comes as the new bill, ostensibly designed to prevent insurers from putting eggs in a basket, is anticipated to prevent Samsung Life Insurance from becoming the largest shareholder in Samsung Electronics.

(Source: Information for the third quarter submitted to the Financial Supervision Service)

(Source: Information for the third quarter submitted to the Financial Supervision Service)

Under the bill, the maximum threshold in terms of the value of a certain asset that an insurer can invest must not exceed 3 percent of an insurer’s total assets, and the value will no longer be determined at the time of investment.

Instead, the value will be determined in the present tense. This means that the maximum amount of an asset that an insurer is eligible to own could change over time as the market value of the investment objective increases.

Should the bill pass parliament, Samsung Electronics shares worth more than 21 trillion won ($15 billion) should be listed on the stock market.

Samsung Life Insurance, with more than 314 trillion won in total assets as of September, has been forced to sell shares of Samsung Electronics if its holdings exceed 9 trillion won.

Currently, Samsung is immune from regulation, because the value of Samsung Electronics shares was 544 million won at the time of the investment, which allows Samsung Life to hold Samsung Electronics shares regardless of share price growth. .

The insurer’s equity stake in Samsung Electronics is now worth more than 30 trillion won by market capitalization, and the maximum amount of the asset eligible to own is greatly increased.

This signals the time is near for Samsung Chief Executive Lee Jae-yong to reconsider a strategy to rein in the chip-to-mobile tech giant.

Although Lee was promoted to Samsung’s top position in October, he stopped short of exercising control of Samsung Electronics’ voting rights.

As of September, Lee has 1.63 percent of the voting rights in Samsung Electronics, but he has stronger influence over the tech giant as Samsung C&T, his de facto holding company, owns 5.01 percent. of common shares of Samsung Electronics, while Samsung Life Insurance is an underwriting arm of Samsung C&T. Lee owns shares in both Samsung C&T and Samsung Life Insurance.

Jun Sung-in, a professor of economics at Hongik University and a vocal critic of chaebol, proposed on Wednesday in the panel that Samsung C&T buy shares of Samsung Electronics from Samsung Life Insurance to improve the group’s shareholding structure, adding that the company de facto holding company can raise cash through its sales of drug-making arm Samsung Biologics.

Samsung C&T owns a 43.1 percent stake in Samsung Biologics.

By Son Ji-hyoung (consnow@heraldcorp.com)

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