South Korea’s richest family upped its share-backed borrowing to about $3 billion, a move that may be a way to pay one of the world’s largest inheritance tax bills and maintain its grip on the Samsung empire.
(Bloomberg) — South Korea’s richest family upped its share-backed borrowing to about $3 billion, a move that may be a way to pay one of the world’s largest inheritance tax bills and maintain its grip on the Samsung empire.
As of last month, the loans have nearly quadrupled from the end of 2021, according to filings. That was the year when Jay Y. Lee and his family announced a plan to pay the levy of more than 12 trillion won ($9.2 billion) in six installments over five years after the death of Lee Kun-hee, the patriarch and longtime head of Samsung Electronics Co.
Borrowing backed by shares is one way to keep wealth in the family in South Korea when faced with one of the steepest death taxes in the world, which can be as high as 60%.
The Samsung heirs are probably increasing their loans because it’s the best way to pay the tax, said Park Sangin, a professor at Seoul National University’s Graduate School of Public Administration. “They wouldn’t want to sell their stakes for cash as it can affect their control.”
Critics say the prospect of large inheritance tax bills can also be a burden on the shares of companies that billionaire owners control.
It can create conflicts of interests with shareholders in their companies, according to Lee Changhwan, chief executive officer of activist investor Align Partners Capital Management in Seoul. For instance, billionaire families may not want shares to rise as it could increase their tax burdens, he said. This is a main cause of the “Korea discount” on stock valuations, he said.
Meanwhile, the pledges for loans carry the risk of margin calls that could cause family members to sell part of their holdings in group companies if the stocks fall.
Stock in four of the conglomerate’s firms, including Samsung Electronics Co. and de facto holding company Samsung C&T Corp. is parked with a court as collateral for the inheritance tax. The total value of the family’s pledged stock is $13.3 billion, of which just under half is collateral for loans. That’s the second-largest among the 500 richest people tracked by the Bloomberg Billionaires Index after Larry Ellison, whose pledges are worth $36.4 billion as of the end of last week.
A spokesperson for Samsung Electronics declined to comment.
The combined fortune of the Samsung heirs is $17.5 billion after removing the shares committed as collateral. On top of pledging shares for loans, Lee’s mother, Hong Ra-hee, and her daughters have disposed of some of their stakes as well, including the sale of a 0.33% holding in Samsung Electronics for about 1.4 trillion won in March last year. Samsung Electronics named the patriarch’s only son Jay Y. as executive chairman last October. He’s worth $8.7 billion, according to the Bloomberg Billionaires Index.
Elsewhere, the family of Kim Jung-ju, the late billionaire founder of online game developer Nexon Co., is also facing a massive tax bill and transferred some of their ownership in parent company NXC Corp. to the government last month as part of payments. The move has made the Ministry of Economy and Finance the second-largest shareholder of the private holding company that controls about 47% of Tokyo-listed Nexon.
–With assistance from Pei Yi Mak, Youkyung Lee, Jack Witzig and Kevin Dharmawan.
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