Samsung Electronics Vice Chairman Lee Jae-yong, right, listens to an employee's explanation about a new product at the company's facility in Suwon, Gyeonggi Province, Friday. Courtesy of Samsung Electronics

Skepticism rises over possibility of Samsung C&T becoming holding firm

By Park Jae-hyuk

Samsung Group's restructuring of its corporate governance has been considered "impossible" by domestic securities analysts, in contrast to the speculation of some market insiders that Samsung C&T will become the group's holding company for pardoned Samsung Electronics Vice Chairman Lee Jae-yong to strengthen his control.

Yuanta Securities analyst Choi Nam-kon said Monday that Samsung Group will maintain its current governance structure.

"If Samsung C&T acquires additional Samsung Electronics shares to transform Samsung Electronics into its subsidiary, it will have no choice but to become a holding firm," he said. "This means that Samsung C&T has to secure at least a 30 percent stake in Samsung Electronics under the current law."

The analyst was skeptical about the possibility of Samsung C&T raising over 35 trillion won ($26 billion) to acquire an additional 10 percent stake in Samsung Electronics.

His outlook was a refutation of other analysts' expectations that Samsung Group will accelerate its efforts for governance reform in the wake of the special presidential pardon given to the Samsung Electronics vice chairman earlier this month.

Earlier this year, Samsung's compliance committee also indicated "the fulfillment of ESG management through governance reform" as one of the three major tasks for this year, raising speculation about the restructuring of the group's corporate governance in the near future.

"Samsung is expected to disclose the outline of its governance reform plan later this year," Hyundai Motor Securities analyst Lee Hong-jae said.

One of the probable scenarios is the transformation of Samsung C&T into a holding firm, given that Lee and his family members hold relatively larger stakes in that company.

They have exercised their influence indirectly over the group's key affiliate, Samsung Electronics, as Samsung C&T holds a 19.34 percent stake in Samsung Life Insurance, which holds an 8.51 percent stake in Samsung Electronics.

Lee is the largest shareholder of Samsung C&T with a 17.97 percent stake and the second-largest shareholder of Samsung Life with 10.44 percent. However, his stake in Samsung Electronics stands at 1.63 percent.

Against this backdrop, the main opposition Democratic Party of Korea's attempt to revise the Insurance Business Act threatens his control over Samsung Electronics, because the proposed revision will force Samsung Life to sell most of its stake in Samsung Electronics.

The Yuanta analyst, however, did not expect the National Assembly to pass the revision bill, considering that the bill was not passed in the previous two assemblies between 2012 and 2020.

"Samsung Group is highly likely to try to maintain the owner family's control through external supporters in its board of directors," he said.