Yuanta: "Passage of Insurance Business Act Negative for Samsung Life, Electronics, and C&T Shareholders"

[Asia Economy Reporter Son Sun-hee] Yuanta Securities released an analysis on the 26th stating that the amendment to the Insurance Business Act, known as the so-called 'Samsung Life Act,' could have negative effects such as reduced dividends for general shareholders of Samsung Life Insurance, Samsung Electronics, and Samsung C&T.

Choi Nam-gon, a researcher at Yuanta Securities, stated in the report titled 'Impact on Governance Structure Following the Passage of the Samsung Life Act,' published on the same day, "Samsung Electronics contributed 86% to Samsung Life Insurance's dividend income last year," adding, "If Samsung Electronics shares are disposed of, annual income is expected to decrease by about 1 trillion KRW compared to before." Furthermore, regarding Samsung Electronics, he pointed out, "The buyback of shares issued by Samsung Life Insurance and others (repurchasing treasury stock) does not affect the circulating shares in the market, so it is unlikely to lead to an increase in Samsung Electronics' stock price," and "In particular, the board of directors may face burdens in decision-making as funds that should be used for shareholder returns are instead invested in handling affiliate shares."

Researcher Choi also forecasted, "Among Samsung C&T shareholders' dividend income (1.54 trillion KRW), Samsung Electronics' contribution is 59%," and "Since Samsung C&T established a principle to redistribute about 60-70% of dividend income from affiliates, its dividend per share rose from 2,000 KRW in 2019 to 4,200 KRW last year; however, if Samsung Electronics shares are disposed of, dividends will be reduced."

The amendment to the Insurance Business Act, proposed by Democratic Party lawmakers Park Yong-jin and Lee Yong-woo of the National Assembly's Political Affairs Committee, includes a provision to limit the holding amount of affiliate stocks by insurance companies to 3% of total assets, evaluated at market value. The key point is that the standard for calculating the 3% of total assets changes from the existing 'acquisition cost' to 'market price.' If the bill passes, Samsung Life Insurance will have to sell 8.3% of its Samsung Electronics shares, equivalent to about 26 trillion KRW of its 8.69% stake, and Samsung Fire & Marine Insurance will have to sell 0.8% of its Samsung Electronics shares, equivalent to about 2.6 trillion KRW of its 1.49% stake.

Researcher Choi explained, "If this bill passes, Samsung Group will face a loss of control over its 9.1% stake in Samsung Electronics." He further analyzed, "If Samsung Life Insurance sells its electronics shares, Samsung C&T will become the largest shareholder of Samsung Electronics, and in this case, the value of subsidiaries (affiliates held as the largest shareholder) relative to total assets (38.8 trillion KRW) will exceed 21.4 trillion KRW, surpassing the 50% holding ratio, which will force Samsung C&T to convert into a holding company under the Holding Company Act."

In this case, Samsung C&T has two major options. The first is to respond to the holding company conversion by disposing of all Samsung Life Insurance shares (19.34%) and expanding its Samsung Electronics stake to 30%. This is estimated to require 86 trillion KRW in funds. The second option is to dispose of 3.1% of Samsung Electronics shares held by Samsung C&T to become the second-largest shareholder after Mrs. Hong Ra-hee (1.96%), thereby avoiding the obligation to convert into a holding company. However, in this case, the Samsung Electronics shares that Samsung Life Insurance, Samsung Fire & Marine Insurance, and Samsung C&T must sell amount to about 40 trillion KRW. Researcher Choi predicted, "Concerns about stock price shocks and significant changes in Samsung Group's control are inevitable."

This content was produced with the assistance of AI translation services.