As Lee family scrambles for cash, Samsung shares rise

Samsung Electronics headquarters in Seocho, Gangnam, southern Seoul. [NEWS1]

Samsung C&T rose by as much as a fifth in trading Monday following the death of Lee Kun-hee, chairman of the Samsung Group, as his family will have to scramble to pay an $8 billion inheritance bill.

One possibility is that the family members will try to increase the dividends paid by companies in which they own shares to raise the much-needed funds. They could also seek outside investors or restructure their holdings in group companies.

Lee Kun-hee owned 20.8 percent of Samsung Life Insurance, 4.18 percent of Samsung Electronics and 2.9 percent of Samsung C&T when he died. It is expected that the inheritance tax bill for his estate will break 10 trillion won ($8.9 billion), the largest in Korea’s history. The inheritance tax rate in Korea is 50 percent.

“Even if the family shareholders divide the tax into six payments over the five years, they still have to pay around 1.8 trillion won every year,” said Hwang Sei-woon, a researcher at the Korea Capital Market Institute. The family “will probably first pay the taxes with loans, and raise the dividends to secure cash and pay off the debt.”

Increasing dividends is a common way for families to pay inheritance tax as they struggle to maintain influence in large corporations through generations.

LG Group Chairman Koo Kwang-mo increased LG Chem’s dividend by 69 percent since 2017 to finance a 921.5-billion-won inheritance tax bill after his father Koo Bon-moo passed away in May 2018.

The payout ratio for Samsung Electronics was 44.7 percent in 2019, a ratio that has increased steadily in recent years as the company faced pressure from activist shareholders. It was 16.4 percent in 2015.

Its second-quarter dividend was 354 won per share for a yield of 2.34 percent, higher than the average for Kospi stocks.

Samsung Electronics is likely to announce its third-quarter results on Oct. 29. Korea Investment & Securities predicts the company will “increase the payout ratio” then.

Samsung C&T Corporation, owned 17.3 percent by Lee Jae-yong, rose as much as 21.2 percent Monday. Samsung Life Insurance, the second-biggest shareholder of Samsung Electronics, added 3.8 percent. Samsung Electronics inched up 0.33 percent.

Hotel Shilla's preferred stock rose by the 30 percent limit.

“Already, Samsung C&T and Samsung Electronics are said to increase the payout ratio for the next three years. Stock prices of preferred stocks also saw sharp increases,” said Moon Ji-hye, analyst from Shinyoung Securities.

BY KANG JAE-EUN [kang.jaeeun@joongang.co.kr]