Samsung Group's two insurance firms said on Wednesday they will sell $1.3 billion worth of stock in the conglomerate's biggest earner, Samsung Electronics Co Ltd, to maintain regulatory compliance. Samsung Life Insurance Co Ltd and Samsung Fire & Marine Insurance Co Ltd separately said their electronics affiliate's current policy of cancelling its own shares to raise the value of investors' holdings risks pushing their own holdings beyond regulatory limits. Samsung Electronics stock fell 3.5% after local media first reported the sales plans, as investors feared the sudden increased supply would push down its price, analysts said.
The announcements come at a time when regulators are questioning conglomerates' cross-shareholding arrangements, saying the web-like ownership structures undermine corporate governance by allowing founding families to control business empires with only direct minority stakes in key units.
In South Korea, conglomerates' financial arms are required to limit their combined stake in a non-financial affiliate to 10%.
Samsung Life owns 8.63% of Samsung Electronics stock with a market value of $26 billion. It said it will sell 1.2 trillion won ($1.11 billion) worth in a single transaction before the stock market opens on Thursday, reducing its stake to 7.92%. Samsung Fire & Marine said it will also conduct a block sale of 206 billion won worth of stock, reducing its stake to 1.38% from 1.45%.
The block sale in a 48,300 won – 49,500 won each range represents a discount of up to 2.4% percent to
Samsung Elec's last traded price, according to a term sheet of the deal seen by IFR on Wednesday. Samsung Life may need to further reduce its holding should parliament push through a 2016 proposal to limit an insurer's investment in any affiliate to 3 percent or less of the insurer's total assets, to promote stable asset management.
The ownership of South Korea's powerful conglomerates has come under increased scrutiny this year following a series of scandals involving members of conglomerates' founding families.
The chairman of the Financial Services Commission recently said
Samsung — a group of 62 affiliates — must consider ways to reduce the risk of having too much of its $375 billion assets concentrated in one place, including selling some or all of Samsung Life's stake in Samsung Electronics.
The chief of the Korea Fair Trade Commission also called the group's ownership structure "unsustainable".In April,
Samsung SDI Co Ltd sold $526 million worth of shares in affiliate Samsung C&T Corp to reduce cross-shareholding and secure funds for investment.