The three children and the wife of Samsung Group Chairman Lee Kun-hee, who died on Oct. 25 at the age of 78, is expected to face inheritance taxes of over 10 trillion won ($9 billion) in aggregate, as they are taking over shares in Samsung units from the deceased Lee.
The tax bill, tipped to be a record for a South Korean business group, may force them to sell part of shares in Samsung Life Insurance Co. and other Samsung units to secure cash. The potential share sale could lead to the ownership family's weakened control over the conglomerate, leaving them vulnerable to activist shareholders, analysts said.
Lee Kun-hee was South Korea’s richest man in terms of shareholdings valued at 18.2 trillion won at the market close on Oct. 23. His ownership included a 4.18% stake in Samsung Electronics and a 20.76% stake in Samsung Life Insurance Co. He also held a 0.08% stake in Samsung Electronics through preferred shares; 0.01% of Samsung SDS; and 2.88% of Samsung C&T Corp.
His wife is likely to take over one third of Lee's wealth, with each of the three children receiving two ninths, unless otherwise stated in a will.
Analysts said Lee might have handed over a bigger portion of Samsung Group shares to Samsung Electronics Executive Vice Chairman Jay Y. Lee than the two daughters -- Lee Boo-jin and Lee Seo-hyun -- and than the succession law stipulates. Samsung declined to confirm whether Lee had left a will.
Jay Y. Lee and the heiresses are expected to sell part of the deceased chairman’s shares in Samsung Life for the inheritance tax payments. Given that the proceeds from the potential sale of Samsung Life shares are not enough to cover the huge tax bill, they may seek to raise an additional cash from dividend incomes from other Samsung units, pushing the Samsung Group units to raise dividend payments, said NH Investment & Securities analyst Kim Dong-yang.
He played down the likelihood that the owner family may sell shares in Samsung C&T, considering the trading company's role as the de facto holding company of the group.
“Samsung C&T has a 19% stake in Samsung Life which has no major shareholder to threaten its management rights. Given this, it is likely for the owner family to sell Samsung Life shares,” said Yuanta Securities analyst Choi Nam-gon.
Samsung Electronics Executive Vice Chairman Jay Y. Lee (at center), his daugher (left) and son (right) He expected Samsung Electronics to bump up dividend payments under a new dividend policy to be unveiled for coming years. Between 2018 and 2020, the technology giant has stuck with the pledged goal of using half of its free cash flow to pay dividend.
Last year, Jay Y. Lee earned 142.6 billion won in dividend incomes. He has not received salaries from Samsung Electronics since 2017.
The Samsung heirs are likely to spread the tax bill into annual payments over the next five years, as does LG Group Chairman Koo Kwang-mo on his inheritance taxes totaling 921.5 billion won, according to analysts.
INSURANCE LAW REVISION
Samsung Electronics is likely to take a hit from a draft bill under which Samsung Life may have to dispose of shares in Samsung Electronics worth over 20 trillion won. That means the world's top smartphone and memory chip maker may lose a friendly shareholder.
Samsung Life holds 8.51% of Samsung Electronics with a market value of 31 trillion won.
The proposed amendment to the Insurance Law requires insurance companies to restrict ownership in affiliates to less than 3% of its assets, applying market prices. Under the current law, the valuation is based on the purchase price.
Once passed, the South Korean conglomerate may have to fight uphill battles with activist shareholders as was in the case of Elliott Management’s move to block the merger between Samsung C&T and Cheil Industries in 2015. At the time, the activist US hedge fund held a 7.12% stake in Samsung C&T
Samsung C&T finally absorbed the textile maker after winning a court ruling.
Meanwhile, analysts played down the chances of the Samsung Group’s spin-offs, citing complicated share swap deals required for the possible split-up.
Write to Hyung-suk Song at click@hankyung.com Yeonhee Kim edited this article.
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