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Why Samsung Subsidiaries Sold Stakes in Affiliate

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Insurance subsidiary sold shares in electronics affiliate

Samsung’s (SSNLF) two insurance subsidiaries recently reduced their equity stakes in their electronics affiliate. Samsung Life Insurance cut its stake in Samsung Electronics to 7.9% from 8.6% by selling $1.1 billion worth of shares in the company, Reuters reported. Samsung Fire and Marine, the other insurance subsidiary, sold shares worth $200 million in Samsung Electronics to lower its equity stake in the affiliate to less than 1.4% from ~1.5%.

In April, Samsung SDI, the company focused on manufacturing displays and batteries, sold $526 million worth of shares in its construction and trading-focused affiliate, Samsung C&T Corporation.

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Need to maintain compliance triggered transactions

The Samsung companies sold stakes in their affiliate to maintain regulatory compliance. South Korea has a law that prohibits subsidiaries of a conglomerate from holding more than 10% in their affiliates, particularly nonfinancial affiliates—Samsung Electronics, in this case.

Since Samsung Electronics decided to cancel its own shares as a way of raising the value of investors’ holdings, Samsung’s two insurance arms faced the risk of their holdings rising above the accepted limits. Therefore, they decided to sell some shares in their electronics affiliate to maintain compliance.

Fundraising

But maintaining compliance is not the only factor that would cause Samsung subsidiaries to sell stakes in their affiliates. In the case of Samsung SDI, a need to raise funds for investment was also a reason for selling a stake.

Earnings by subsidiaries led the Samsung conglomerate to post an $11 billion profit on revenue of $56.3 billion in the first quarter. Apple, Google’s parent, Alphabet (GOOGL), and Microsoft (MSFT) posted first-quarter profits of $13.8 billion, $9.4 billion, and $7.4 billion, respectively. Ericsson (ERIC) and Nokia (NOK) suffered first-quarter losses of $95 million and $220 million, respectively.

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