Factbox: How Samsung's ownership may change as heirs take over from late Chairman Lee

Samsung E&A Co

27/10/2020 06:03

By Hyunjoo Jin and Joyce Lee
    Oct 27 (Reuters) - South Korea's powerful Lee family faces a
battle to maintain control of Samsung Group, the country's
biggest conglomerate, following the death of patriarch and group
Chairman Lee Kun-hee. 
    From the astronomical inheritance tax bill to potential
legal obstacles, here are some of the issues the family faces as
it seeks to stay on top of the business empire founded back in
1938. 
       
    CROWN JEWEL
    The family is expected to focus on maintaining control of
the conglomerate's crown jewel Samsung Electronics Co Ltd
 005930.KS , but family members' combined direct stake ownership
is only at 5.8%. 
    Their outsized control is made possible through their
shareholding in Samsung Life Insurance  032830.KS , which holds
8.5% of the flagship chipmaker, and Samsung C&T Corp
 028260.KS , which owns 5%.  
    The majority of the late chairman's assets were a 4.18%
stake in Samsung Electronics, worth about 15 trillion won 
($13.3 billion), which the family is expected to try to inherit
entirely.  
    Heir apparent Jay Y. Lee's direct stake in Samsung
Electronics is just 0.7% but he exercises control primarily
through his 17.3% stake in Samsung C&T, which in turn is the
second-largest shareholder of Samsung Life Insurance - a major
shareholder of Samsung Electronics.
       
    HEFTY INHERITANCE TAX
    If the family inherits Lee's stocks, the total tax bill is
estimated to top 10 trillion won ($9 billion).  urn:newsml:reuters.com:*:nL1N2HG0AN  
    It can be paid in instalments; one-sixth must be paid
initially, then the rest over five years, meaning annual
payments can exceed $1 billion. 
    
    MONEY TO PAY THE TAX
    The Lee family can sell their stocks in information service
provider Samsung SDS  018260.KS  and other non-core affiliates
to pay the tax.
    Dividends totalling about 702 billion won a year from their
combined holdings in Samsung affiliates can also be used, which
will add up to about 32% of the annual tax bill, according to
Choi Nam-kon, an analyst at Yuanta Securities.
    The shortfall may have to be covered with loans or partial
sales of stakes they hold or will inherit in Samsung Life
Insurance and Samsung Electronics.
    "The view is that selling part of the stake in Samsung
Electronics during the inheritance process may be unavoidable,"
said Jeong Dae-ro, analyst at Mirae Asset Daewoo Securities.
    Such stake sales could weaken the family's direct control of
Samsung Electronics. 
    
    LEGAL OBSTACLES
    Proposed legislation making it tougher for insurance
companies to hold large stakes in non-financial affiliates
relative to their assets could force Samsung Life to sell about
$20 billion in shares in Samsung Electronics and cripple the
Lee's family's grip on the chipmaker. 
    To ensure the Lee family keeps control, Samsung Life may try
to sell its stake to Samsung C&T, which would in turn unload
stakes in other units to come up with the funds.
    The passage of the law remains uncertain as it could be
unpopular with retail investors ahead of a presidential election
in early 2022.    

($1 = 1,127.2200 won)

 (Reporting by Hyunjoo Jin and Joyce Lee; Editing by Stephen
Coates)
 ((jungyoon.lee@tr.com; +82 2 6936 1467;))