Samsung Group started the process of streamlining its corporate structure earlier this week, with Samsung Life Insurance Co Ltd selling approximately $1 billion worth of Samsung Electronics stock yesterday. The sale was completed before the firm's shares started trading on Thursday and the tech giant's plans for the move were first reported in April. Samsung Life Insurance still owns some $25 billion worth of Samsung Electronics stock, with that circular ownership structure being one of the reasons why the conglomerate as a whole is severely undervalued, according to some investors.
The new development marks a weakening of the corporate pull of Jay Y. Lee, Samsung Group Vice Chairman and grandson of the firm's founder Lee Byung-chul. Mr. Lee is said to have personally approved the move shortly after having his five-year prison sentence for corruption suspended earlier this year. His father and Chairman Lee Kun-hee has reportedly been in a comatose state since suffering a stroke in 2014 and after he dies, the younger Mr. Lee is facing a 50-percent inheritance tax on his wealth. Media in the Far Eastern country previously speculated that the 49-year-old would cover that tax by offloading some of his directly and indirectly owned shares. Samsung's corporate structure is currently under scrutiny from Seoul, with Korea's antitrust watchdog recently criticizing it as "not sustainable."
Ever since being introduced in the '90s, circular ownership schemes allowed Samsung and many other family-run conglomerates in the country — also known as chaebols — to tap into the capital offered by the public markets without giving up on too much corporate power. Samsung is still on the path of growth, having recorded an operating profit of $14.49 billion in the first quarter of the year, up more than 58 percentage points annually. Its sales rose some 20-percent to $56 billion over the same period, though some analysts remain skeptical about the company's ability to maintain that aggressive growth in the medium term, especially given its reliance on the semiconductor industry.