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(Reuters) – South Korea’s powerful Lee family faces a battle to maintain control of Samsung Group, the country’s largest conglomerate, following the death of patriarch and group chairman Lee Kun-hee.
From the astronomical inheritance tax bill to potential legal hurdles, here are some of the problems the family faces as it seeks to stay on top of the business empire founded 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 the combined direct participation of family members is only 5.8%.
Your enormous control is made possible by your participation in Samsung Life Insurance 032830.KS, which owns 8.5% of the flagship chipmaker, and Samsung C&T Corp 028260.KS, which owns 5%.
Most of the late president’s assets were a 4.18% stake in Samsung Electronics, worth around 15 trillion won ($ 13.3 billion), which the family is expected to try to inherit entirely.
Heir Jay Y. Lee’s direct stake in Samsung Electronics is only 0.7%, but he exercises control primarily through his 17.3% stake in Samsung C&T, which in turn is Samsung’s second largest shareholder. Life Insurance, one of the main shareholders of Samsung Electronics.
HEFTY INHERITANCE TAX
If the family inherits Lee’s shares, the total tax bill is estimated to exceed 10 trillion won ($ 9 billion). It can be paid in installments; One sixth must be paid initially, then the remainder over five years, meaning annual payments can exceed $ 1 billion.
MONEY TO PAY THE TAX
The Lee family can sell their shares in information service provider Samsung SDS 018260.KS and other secondary subsidiaries to pay the tax.
Dividends totaling about 702 billion won a year can also be used from your combined holdings in Samsung affiliates, 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 need to be covered by loans or partial sales of the interests they own 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, an analyst at Mirae Asset Daewoo Securities.
These stake sales could weaken the family’s direct control over Samsung Electronics.
LEGAL OBSTACLES
Proposed legislation that makes it more difficult for insurance companies to hold large stakes in nonfinancial affiliates relative to their assets could force Samsung Life to sell around $ 20 billion in Samsung Electronics stock and cripple control of the Lee family. about the chip maker.
To ensure that the Lee family maintains control, Samsung Life may attempt to sell its stake to Samsung C&T, which in turn would offload stakes in other units to obtain the funds.
Passage of the law remains uncertain as it could be unpopular with retail investors ahead of the presidential elections in early 2022.
Reporting by Hyunjoo Jin and Joyce Lee; Editing by Stephen Coates
