Samsung C&T beats deadline with block sale

Samsung SDI offloads a total of 5 million Samsung C&T shares through a three-way sale, just meeting a deadline from the Fair Trade Commission.

Samsung SDI, the battery and panel-making unit of Korea’s biggest conglomerate, completed the partial sale of its shareholding in Samsung C&T on Thursday as Samsung Group responded to calls from the antitrust regulator to unwind the circular ownership structure of its public-listed affiliates.

Shortly after the market close, Samsung SDI launched the sale of a 1.95% stake in Samsung C&T through joint bookrunners Citigroup and Credit Suisse. A total of 3.7 million Samsung C&T shares were offered for sale at an indicative price range of W148,410 to W153,000 per share, representing a discount range of 0% to 3% to the stock’s Thursday close.

The deal was priced late Thursday night without a discount at W153,000, raising total proceeds of W565 billion ($455 million), according to a source familiar with the situation.

As part of the transaction, unlisted charitable institution Samsung Life Public Foundation subscribed to 2 million shares at the final price, leaving about 1.7 million shares for sale to institutional investors.

Another source familiar with the situation said Samsung SDI sold another 1.3 million shares in a concurrent private placement to Lee Jae-yong, the only son of chairman Lee Kun-hee and chief heir-apparent, bringing the total number of shares sold to 5 million, or 2.64%, of the company.

Samsung SDI is now subject to a three-month lock up for its remaining 2.13% Samsung C&T stake, according to a termsheet seen by FinanceAsia.

Cross shareholding ban

The transaction was prompted by a ruling in 2014 by the Fair Trade Commission that prohibits cross shareholdings among affiliates of family-controlled conglomerates, or chaebols as they are known in Korean.

Cross shareholdings are widely adopted by chaebols as a means to effectively retain ultimate control over a business empire with the smallest shareholdings.

According to the FTC, the merger of Samsung C&T and Cheil Industries last year created new circular shareholdings among the group companies. As part of the attempt to unwind such holdings, Samsung SDI was ordered to sell 5 million Samsung C&T shares, or a 2.6% stake of the group’s de facto holding company, by March 1.

Samsung requested an extension, according to local reports, but eventually it was able to complete the request four trading days before the deadline.

Umbrella structure

Recent transactions within the group suggest Lee Jae-yong is trying to consolidate all of the Samsung affiliates under Samsung C&T.

He is the largest single shareholder in Samsung C&T with a stake of 16.54%. 

Thursday’s trade was part of a wider corporate restructuring to unwind the circular holding structure between Samsung C&T, Samsung Electronics, and Samsung SDI. Samsung C&T holds 4.12% of Samsung Electronics, which is the largest shareholder of Samsung SDI with a 19.58% stake.

Samsung SDI was supposed to be at the bottom of the shareholding structure but intriguingly it held 4.77% in Samsung C&T, now reduced.

Elimination of Samsung SDI’s holding in Samsung C&T will create a linear shareholding with the latter on top. 

Last month, the group announced the transfer of Samsung Electronics’s entire $1.27 billion holding of Samsung Card shares to Samsung Life Insurance, which is a direct subsidiary of Samsung C&T. Such arrangements would allow Lee to firm up his control over the credit card subsidiary.

In order to put Samsung C&T on the top of the group’s umbrella holding structure, the company will have to tackle two other sets of circular shareholdings between itself, Samsung Life and Samsung Fire & Marine Insurance, as well as with Samsung Electronics and Samsung Electro-Mechanics respectively.

Samsung SDI's, Samsung Fire & Marine Insurance's, and Samsung Electro-Mechanics’s combined shareholding in Samsung C&T is worth approximately $1.44 billion based on the latter's Thursday closing price.

FTC has not given any deadline to Samsung to unwind these cross-shareholdings but the chaebol said it will dissolve these ties as soon as possible.

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