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Jean-Michel Basquiat drew inspiration from black boxers, African sculpture and racial discrimination when he produced “Untitled (Black Figure)” in 1982, one of the many masterpieces in which he broke new ground in art.

That same year, Lee Kun-hee steered Samsung’s top engineers towards mastering how to transfer millions of metal-oxide-semiconductor transistors on to a single computer chip, a new process that would help underpin sweeping advances in modern technology.

While the American painter and the Korean industrialist, who died in October 2020, were worlds apart, they have become inextricably linked. Basquiat’s striking canvas is among the chattels in a vast estate Lee’s wife and three children are considering parting ways with as they draw up plans to foot an inheritance tax bill estimated at $12bn.

The bill, which stems from South Korea’s 60 per cent inheritance tax, the highest in the OECD, exposes the rapidly widening fissure between the country’s ultra-rich and ordinary citizens.

“They have benefited from society to become so rich,” said Chang Sung-ja, a 56-year-old in the southern city of Suncheon who, with her husband, drives people home after they have been drinking. “People like us can’t even imagine the amount of their wealth.”

Lee, the son of Samsung’s founder who led South Korea’s biggest company, was long revered as a helmsman whose successes helped wrench an impoverished nation from the ashes of a brutal war and make it a technological powerhouse.

But for many South Koreans today, the Lees’ wealth — and that of other chaebol families that dominate the county’s business landscape and wield heavy political influence — has become divisive. The elites’ lives of privilege and excess stand in stark contrast to the continued battle of most workers who struggle to make ends meet.

Despite the looming tax deadline, neither the family nor Samsung has commented on how the tax will be paid — beyond insisting privately that the money owed will be accounted for in full and on time. The jailing in January of Lee Jae-yong, the late chair’s son who now heads Samsung, on bribery charges linked to his own succession has further complicated the family’s public relations problems.

The most likely scenario is that the payments will spread across five years under a complex structure that will reshape the family’s fortunes, according to analysts and commentators.

Park Ju-geun, head of CEO Score, a research firm, said initial payments were expected to be made via large bank loans using their shareholdings in Samsung units as collateral.

Given that the late patriarch’s wealth is mostly tied up in a web of shareholdings in Samsung group companies, different listed units are also expected to pay out higher dividends to help shore up the family’s cash position.

But towards the end of the five-year period, the family will probably still have to divest some of its holdings in Samsung companies, a prospect that raises the risk that its ironclad grip on the conglomerate could be loosened.

Bar chart of Top 10 rates in OECD (%) showing Inheritance tax looms for wealthy Koreans

The sale or donation of the art collection and restructuring of the family’s interests held via charity foundations is also under discussion, according to Park and other people familiar with the situation. The collection, estimated at 13,000 pieces and valued as high as $2.7bn, includes works by Pablo Picasso, Andy Warhol and Mark Rothko, as well as works by Korean artists Park Soo-keun and Lee Jung-seob.

Chung Joon-mo, head of the country’s art appraisal centre and the former top curator at the National Museum of Modern and Contemporary Art, is supportive of allowing tax breaks if the artworks are donated to state-run museums.

“They are already in talks with the museums and they have almost made the decision,” Chung said, adding that the donation would be welcomed given the “limit in buying expensive artworks with state budgets”.

Others, however, oppose the family using art donations to lower their tax bill. “Why can’t they just pay the bill in cash? They have a lot of money,” said Im Han-kyu, a 55-year-old cleaner. “This wouldn’t make a big difference to their livelihoods because money makes money.”

Inheritance tax regimes vary across the globe but South Korea’s top rate is on the higher end of the scale internationally.

The Lee family’s tax troubles are part of a broader shift under way as succession and inheritance battles threaten to transform markets across parts of Asia.

In Japan, for instance, generational changes in company ownership and control are driving a boom in private equity interest that has drawn all the world’s biggest funds to set up shop in Tokyo. 

Japan is not only the world’s fastest ageing major economy but also has the highest concentration of company founders reaching their late 70s and looking for a structured exit from the businesses they spent decades building.

The profile of companies and their executives are crucial to this boom, which private equity firms believe will eventually be replicated across Asia as the different economies, such as South Korea, catch up with the demographics in Japan.

Back in Seoul, however, Samsung still enjoys a solid supporter base. People, from business leaders to monks, have in recent days called for Lee Jae-yong to be freed from prison via a presidential pardon. The family hopes the gift of works by artists such as Basquiat will remind the public of its contributions to society and cement acceptance for a third generation of Lee leadership.

Additional reporting by Emma Agyemang in Copenhagen

2021-04-24 00:30:51

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