Samsung Life’s unloading of Samsung Elec. stocks to boost investors

19-Aug-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Since ruling party lawmakers proposed revisions to the current Insurance Business Act in mid-June, Samsung Life’s stock price increased by 39.5 percent from the closing price of 46,800 won ($39.4) on June 18 to last Friday’s closing price of 65,300 won. The insurance stock then fell by 9.49 percent to 59,100 won on Tuesday’s trading session. These volatile stock fluctuations show investors’ expectation and confusion regarding the insurer’s future since new financial regulation proposals were recently made by lawmakers.

Park Yong-jin and Lee Yong-woo, both lawmakers of the ruling Democratic Party of Korea (DPK), suggested the proposals aimed at shifting insurers’ asset assessment standards from current book value to market value, which is more in line with the International Financial Reporting Standards (IFRS) 17 coming into force in Korea in 2023.

Only two insurers ? Samsung Life and Samsung Fire & Marine Insurance ? will be impacted in their asset management from the bills’ passage. Both insurers are currently shareholders of Samsung Electronics, investing about 30 trillion won and 5.25 trillion won, respectively, in the electronics giant. With the bills’ passage, they’d be forced to sell everything except 3 percent of their company asset size in terms of market value. It means Samsung Life has to sell about 20 trillion won worth of Samsung Electronics shares, while Samsung Marine & Fire needs to sell 3.25 trillion won worth of them.

The proposals have been submitted to a standing National Policy Committee at the Assembly, and will be discussed once the National Assembly’s regular session kicks off next month. Given the ruling party’s dominance at the Assembly as well as financial authority chiefs’ backing on the issues, it’s expected that the revisions will be passed during the assembly session.

Possible scenario

As Park’s suggestion provides a grace period of five years for the required revisions to be completed, Samsung Life has at least five years to prepare itself for the possible upcoming challenge. Approval from the Financial Services Commission (FSC) could also prolong the period by two more years ? that’s why market insiders say the insurers would sell their Samsung Electronics shares in the next seven years.

Market watchers expect one possible scenario from the massive sales of the electronic giant stocks is that Samsung C&T, the de facto holding company of Samsung, will purchase them in order to maintain Samsung vice Chair Lee Jae-yong’s current grip on Samsung. Lee is the largest shareholder of Samsung C&T ? the largest shareholder of Samsung Life.

Some also expect Samsung C&T would sell its shares of Samsung Biologics to secure money necessary for purchasing Samsung Life and Samsung Fire’s electronics equities. Samsung C&T owns about 43.44 percent of Samsung Biologics’ shares, amounting to some 23 trillion won, which is a similar value to the Samsung Electronics shares to be given up by the insurers.

Possible boon for Samsung Life shareholders

Whatever is the case with a possible selling scenario, market analysts predict an additional surge to the insurers’ stock price.

“It’s true that Samsung Life has to sell parts of its owned equities in Samsung Electronics. However, even if Samsung Life gets to only keep 3 percent of its Samsung Electronics shares, that amounts to 10.5 trillion won. Given that the insurer’s market cap stands at 14.4 trillion won, Samsung Electronics’ equity values could be further reflected in Samsung Life’s stock price,” emphasized Chung Tae-joon, an analyst at Yuanta Securities Korea.

Chung added the main challenge for the insurer is to find alternative lucrative investments that could replace Samsung Electronics in the long term.

Another analyst also pointed out that Samsung Life’s share price might have the momentum for its stock price to be normalised, appropriately reflecting its asset price.

“One of the reasons that Samsung Electronics’ equities couldn’t have been reflected in Samsung Life’s market value was that it was estimated that the insurer could not sell the equities due to Samsung’s conglomerate dominance issue,” said Kang Seung-gun, an analyst from KB Securities, adding that if the sales are to be realised, stock prices could increase from the profits.


Category: Korea

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