Want more Samsung goodies? Hope Moon wins S Korea presidential polls

A victory for liberal candidate Moon Jae-in, the favourite in Tuesday’s presidential elections in South Korea, would end nine years of conservative rule, and may energize what Mirae Asset Daewoo Co.’s investment strategist Peter Kim calls the “Occupy chaebol” movement.
For shareholders of Samsung Electronics Co., the shifting political winds could mean more dividends and share buybacks.
Popular angst over Korea’s dominant conglomerates isn’t new. But since last April’s surprise parliamentary win for Moon’s left-leaning Minjoo Party, it’s been clear the grip that chaebol have on politics has been weakening. The final nail was the December impeachment of former President Park Geun-hye over an influence-peddling scandal involving Jay Y. Lee, the scion of the Samsung empire.
Never mind the trickier governance reforms, such as letting shareholders of a parent company hold executives at affiliates liable for losses. A win for Moon may mean that capital-gains tax deferments for conglomerates that extinguish cross interests and switch to a holding-company structure won’t get a sixth extension beyond the current December 2018 expiry date. There might also be some restriction on using treasury shares to suppress voting rights of minority shareholders.
Cross shareholdings allow tycoons control far in excess of their economic interest. Over the past 17 years, many of the chaebol have been cajoled to dump them in favour of fairer, more transparent, holding structures. Still, at the start of this year, the prominent offenders—Samsung, Hyundai and Lotte groups— accounted for 38% of the Kospi Index. Before the capital-gains deferment becomes history, two of those three are getting a makeover.
Shipbuilder Hyundai Heavy Industries Co. will resume trading on Wednesday after spinning off its robotics, energy systems and construction equipm- ent businesses. Hyundai Robotics Co., which will inherit treasury shares representing a 13% stake in Hyundai Heavy, is set to become the holding company.
Similarly, the revamped Lotte Group, formed by splitting the food, confectionery, beverage and shopping units into operating and investment firms, and then merging the investment entities, will also have about 12% treasury shares in the holdco.
That’s the other hot-button issue. Moon’s party is opposed to the existing restructuring law, which allows treasury shares to get allotted to a holdco, granting additional voting rights to the controlling family. Interestingly, Samsung Electronics is cancelling tens of billions of dollars in treasury shares, but saying no to activist demands for a deeper restructuring.
The former move, which gives a big boost to return on equity, also shows group’s fear of impending legal changes. The latter is perhaps more an act of helplessness than defiance. As Mirae Asset’s Kim says, it would be ‘mathematically impossible’ for Samsung C&T Corp., with its market value of $21 billion, to become the holdco for the $289 billion electronics behemoth; hence Samsung may have to appease shareholders with more goodies.
Korea’s chaebol will pay for their bad behaviour—like Hyundai Motor Co. lavishing $10 billion on trophy real estate. From the hefty increase in dividends and share repurchase plans in recent years, it appears payback time for investors has already arrived. An election victory for Moon could open the corporate purse strings even wider.
— Bloomberg

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News