Samsung C&T, Uneasy Amid Discussions on Samsung Life Insurance Act Despite Holding 3 Trillion Won in Cash

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] Despite Samsung C&T accumulating over 3 trillion won in cash, it remains restless as it has yet to find a solution to restructure its governance whenever the 'Samsung Life Insurance Act' issue arises.

According to Samsung C&T's quarterly report on the 1st, as of the end of the third quarter, the company's cash and cash equivalents amounted to 3.1151 trillion won, an increase of about 860 billion won compared to 2.2545 trillion won at the end of last year. With the expansion of high-tech order volumes and the full-scale launch of sales from new overseas projects, operating profit in the third quarter reached 796.8 billion won, showing a 'surprise' level of performance with an increase of over 465% compared to the third quarter of last year.

Looking only at the financial statements, Samsung C&T appears worry-free, but the unresolved and frustrating task remains the governance restructuring, which is not easy to solve even by pouring in more than 3 trillion won in cash. Especially recently, as the amendment to the Insurance Business Act, known as the 'Samsung Life Insurance Act,' has resurfaced in the political arena and attracted attention, focus is also being placed on Samsung C&T's response, which is at the center of Samsung's governance restructuring.

If the standard for calculating 3% of an insurer's total assets changes from 'acquisition cost' to 'market price,' Samsung Life Insurance would have to sell 6.23% of Samsung Electronics shares, equivalent to 21 trillion won out of its 8.73% stake, and Samsung Fire & Marine Insurance would have to sell 0.84%, equivalent to 2.9 trillion won out of its 1.49% stake. If the bill passes, facing the risk of losing control over more than 7% of Samsung Electronics shares, the industry suggests several scenarios Samsung C&T could adopt to maintain the control of Samsung Electronics Chairman Lee Jae-yong. All share the commonality of requiring enormous cash outlays.

One method is for Samsung C&T to purchase the Samsung Electronics shares that Samsung Life Insurance must sell in cash if the Samsung Life Insurance Act passes. Although Chairman Lee Jae-yong's direct stake in Samsung Electronics is only 1.63%, he exercises control through Samsung Life Insurance (8.51%), Samsung C&T (5.01%), Samsung Fire & Marine Insurance (1.49%), which hold Samsung Electronics shares. If Samsung C&T absorbs Samsung Electronics shares, it can alleviate concerns about the weakening of Chairman Lee's control due to the changed regulations. However, Samsung C&T does not have the over 20 trillion won in cash needed to absorb Samsung Electronics shares. Even if Samsung C&T acquires Samsung Electronics shares, the holding ratio would exceed 50%, making conversion to a holding company inevitable.

Some suggest the possibility that Samsung C&T could sell its stake in Samsung Biologics to fund the purchase of Samsung Electronics shares. However, Biologics is one of Samsung Electronics' key future growth engines, and selling it could shake Samsung Electronics' future strategy itself. Another scenario raised is to secure friendly strategic investors to obtain friendly shares, but since the purchase scale is large, it carries the burden of coordinating interests among multiple strategic investors.

From the perspective of the Insurance Business Act amendment and strengthening Samsung Electronics' control, the spin-off of Samsung Electronics is also proposed as a scenario. Analyst Choi Nam-gon of Yuanta Securities recently commented on Samsung Group's governance restructuring scenarios, saying, "After the spin-off, the Samsung Electronics investment company can acquire 10% of the Samsung Electronics business company shares held by Samsung financial affiliates (Samsung Life Insurance and Samsung Fire & Marine Insurance), and Samsung C&T can acquire shares of the Samsung Electronics investment company held by Samsung financial affiliates." He added, "The funds required for Samsung C&T to purchase shares of the Samsung Electronics investment company are around 10 trillion won, which is a scale that Samsung C&T can sufficiently mobilize."