Samsung group restructures financial affiliates

Samsung Life Insurance on Thursday acquired a majority of shares of Samsung Card, a credit card affiliate owned by Samsung Electronics. The life insurance giant became the largest shareholder of Korea’s top conglomerate’s financial affiliates.

The ownership structure is being changed to eventually make the life insurance affiliate a holding company for Samsung’s financial affiliates - Samsung Fire & Marine Insurance, Samsung Securities and the card company.

Samsung Life announced Thursday via the Financial Supervisory Service’s electronic system that it acquired 37.5 percent of the card company’s shares, or 43.39 million shares, from the electronics arm.

The deal was worth 1.54 trillion won ($1.28 billion), as the card company’s stock is priced 35,500 won per share.

Samsung Life became the largest shareholder of the card company with 71.9 percent of total shares, up from 34.4 percent before the purchase.

The acquisition intends to “boost synergy between the group’s insurance and card businesses,” Samsung Life wrote in a statement Thursday.

In Korea, two requirements are necessary in order to become a financial holding company. The company has to own at least 30 percent of its affiliate’s shares and must also be the largest shareholder.

Samsung Life Insurance is already the largest shareholder of the fire and marine insurance and securities affiliates, but it does not meet the first condition.

As Samsung Life owns 14.98 percent of the fire and marine insurance unit’s shares and 11.14 percent of the securities unit’s shares, the two affiliates bought back their own stocks last year in order to boost its stake. Following that effort, Samsung Life and Samsung Fire & Marine Insurance together now hold 31 percent of the latter’s stock, and the securities arm owns 19.85 percent.

There is still more restructuring needed. The Financial Industry Structural Improvement Act prohibits a financial company from owning 5 percent or more of non-financial affiliates in the same group.

“It will take time before Samsung Life can be a financial holding company,” a source said, “because the insurer has to reduce its ownership of Samsung Electronics’ shares below 5 percent from a current 7.2 percent.”

Analysts believe the insurer will sell those shares over to the construction and fashion arm, Samsung C&T, or to some white-knight shareholders.

With the move, rumors that the group may sell its card affiliate should die down. The rumors said a Chinese insurer was preparing to buy the card company.

The card affiliate’s stock soared 10.41 percent on Thursday compared to the previous trading day to close at 35,000 won.

Kim Sang-jo, an economics professor at Hansung University, expects the group will succeed in forming a financial holding company in a year or two. The life insurance affiliate will play that role while a non-financial holding company will control Samsung Electronics and other manufacturing and service sector affiliates.

Kim predicted the group will then “establish a final holding company that manages these two holding companies.”

The local fair trade law will have to be revised for that scenario. Current law prohibits a non-financial holding company from managing a financial holding company. A bill to revise the law is currently pending at the National Assembly.

The international insurance industry has tightened regulations.

Samsung Life’s recent announcement that it sold its headquarters in central Seoul to Booyoung Group was part of a proactive strategy to strengthen its finances.

Samsung Electronics Vice Chairman Lee Jae-yong decided to sell 2.05 percent, or 1.587 million shares, of his personal holdings of the group’s IT service affiliate SDS to institutional investors, according to the electronics giant on Thursday. The shares are worth 380 billion won before transfer taxes. The shares will be sold sometime before Feb. 15.

Lee’s decision followed his announcement last December that he wanted to help Samsung Engineering, which has suffered from capital impairment due to large losses from its plant business in the Middle East. The engineering affiliate planned to issue new shares worth 1.2 trillion won next month to raise capital. Lee said he was willing to spend up to 300 billion won from his own pocket if no existing shareholders showed interest in the newly issued stocks. Selling off the SDS stake this time will bring Lee enough cash for such a purchase.

“Lee’s decision was to help rescue Samsung Engineering from its current capital impairment status and to minimize financial damage to shareholders,” a Samsung Electronics spokesman said.

BY HAN AE-RAN, KIM KI-HWAN [kim.jiyoon@joongang.co.kr]