Samsung Motors Lenders Collect $1.4 Billion From IPO, Seek More

Creditors of Samsung Motors Inc., which collapsed a decade ago, are closer to getting the money they say they’re owed after Samsung Life Insurance Co. completed South Korea’s biggest initial public offering.

In place of cash payments Samsung Group Chairman Lee Kun Hee in 1999 handed Woori Bank, Citibank Korea Inc. and other creditors of the former auto-making unit shares in Samsung Life. The lenders recouped principal from 1.6 trillion won ($1.4 billion) gained in the insurer’s IPO this month, according to two people familiar with the matter. Now, they will press demands for 2.9 trillion won in penalty interest from Samsung.

Victory would bring windfalls as Korea’s economy grows 5.2 percent this year, according to central bank forecasts. For Lee, South Korea’s richest man and son of Samsung founder Lee Byung- Chul, the $4.3 billion share sale may help settle the debt after more than 10 years.

“Neither side will want to prolong the legal dispute,” said Lee Tae Kyung, an analyst at Hyundai Securities Co. in Seoul. “The success of the listing is likely to prompt the creditors to resolve their claims with Samsung Group to get the money as soon as possible.”

Samsung Life, Korea’s biggest insurer, climbed 3.6 percent on its first day of trading May 12.

Source: Renault Samsung Motors via Bloomberg

Employees assemble cars on the production line at the Renault Samsung Motors' factory in South Korea. Close

Employees assemble cars on the production line at the Renault Samsung Motors' factory in South Korea.

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Source: Renault Samsung Motors via Bloomberg

Employees assemble cars on the production line at the Renault Samsung Motors' factory in South Korea.

Claim for Interest

The lenders sued Lee and 28 Samsung Group units in 2005, seeking their principal plus 19 percent interest per year after Seoul-based Samsung Life failed to sell shares in 2000, court documents show. Samsung Group says its companies shouldn’t have to pay the interest.

The Seoul Central District Court ruled against Samsung in January 2008, ordering Lee and the units to pay creditors principal and interest equivalent to 6 percent a year backdated to 2001. Both parties rejected the judgment.

With no timetable for a new ruling, creditors agreed in March to sell their combined 11.4 percent stake in Samsung Life, or 22.78 million shares, at 70,000 won apiece to enable the IPO to proceed, said the people, who asked not to be identified as the information is private.

Under the terms of the agreement with Samsung Group, surplus gains above 70,000 won would be held in custody pending a court decision, they said. Shares priced at 110,000 won in the IPO.

IPO Price

If the creditors win their 2005 suit they would get 2.9 trillion won including the difference between Samsung Life’s 110,000 won IPO price and the 70,000 won they got per share. If they lose, Samsung pays no interest or penalties and keeps surplus gains from the IPO, according to three people familiar with the matter.

“Since the principal is now recovered, Samsung Group may scramble to settle the interest issues by using the extra money raised” in the IPO, said Ku Yong Uk, senior analyst at Daewoo Securities Co. in Seoul.

Seoul Guarantee Insurance Co. sold 7.16 million Samsung Life shares, the largest stake among creditors, regulatory filings show. Woori Finance Holdings Co. units Woori Bank and Kyongnam Bank sold a combined 5.55 million shares, and nine other creditors including Shinhan Bank, Citibank Korea Inc., Hana Bank and Kookmin Bank also sold stock.

Insurer Profit

Samsung Life said profit jumped 90 percent to 652.2 billion won in the nine months through December 2009.

Samsung Group is a so-called chaebol, the Korean term for corporations that are typically controlled by families and that have multiple cross-holdings. Lee, 68, is South Korea’s richest person with wealth of $7.9 billion, according to Forbes magazine’s 2010 ranking.

Samsung affiliates named in the suit include Samsung Electronics Co., Asia’s biggest maker of chips, televisions and mobile phones, Samsung Heavy Industries Co., the world’s No. 3 shipyard, and Samsung SDI Co., the world’s second-largest maker of lithium-ion rechargeable batteries.

The most likely outcome of Samsung Group’s dispute with the creditors is that both sides will agree to follow the 2008 court ruling or they’ll reach an out-of-court settlement, according to Hyundai Securities’ Lee.

Reuben Staines, a Samsung spokesman, and Choo Byeong Kwan, manager of the corporate claims recovery department at Seoul Guarantee Insurance, declined to comment on the share sale and litigation.

Hwang Sung Hoon, a spokesman at Hana Financial Group Inc., J.Y. Park, a Woori Bank spokesman, J.W. Yoon, a spokesman at Shinhan Bank, and You Jung Youn, a spokesman at Kookmin Bank, all declined to comment. A Citibank Korea spokesman who couldn’t be identified declined to comment.

To contact the reporter on this story: Jungmin Hong in Seoul at jhong47@bloomberg.net

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