Samsung's Lee family may use stock as collateral for loans for $10 billion tax

The family of deceased Samsung patriarch Lee Kun-hee is discussing using shares in affiliated companies as collateral for personal loans to pay part of more than $10 billion in inheritance taxes, three financial industry sources with knowledge of the matter told Reuters.

The loans are a way to pay off some of the tax bill without the family having to sell their extensive Samsung holdings, said one of the sources, the chief executive officer of a financial company based in Seoul with knowledge of the discussions.

Two other bank officials with knowledge of the matter also corroborated the family's discussions, adding that several banks had lined up for the business because the Lee family, South Korea's richest, is considered an excellent client.

The sources declined to be identified because the loan talks are considered confidential.

"The likelihood is high that they will keep the current shareholding structure without selling major stakes," said Kim Soo-hyun, an analyst at Shinhan Investment Corp.

The inheritance tax amounts to about 11 trillion won ($9.9 billion) for the deceased Lee's listed shareholdings alone, and the total taxes for the entire estate including art, real estate and cash holdings are estimated to be 12 trillion to 13 trillion won ($10.8 billion to $11.7 billion).

The Lee family is required to report to the tax authorities the extent of the inheritance and the payment plan by the end of April. Lee died on Oct. 25 with a net worth estimated at about $20.9 billion.

South Korea's tax code allows payment in instalments, with one-sixth of the total tax bill to be paid first, then the rest over five years at an annual interest rate currently set at 1.2 per cent. Even in instalments, more than 2 trillion won is expected due annually.

"The family has been discussing, for a considerable period of time, stock-backed loans with several banks that mainly deal with Samsung companies," said the financial company CEO.

"I understand the entire amount of the inheritance tax is not going to be raised like this, but discussed along with other methods."

Dividends the family receives from their own shareholdings, in addition to the deceased Lee's shares, are also expected to go toward paying the tax, analysts at Mirae Asset Securities and Shinyoung Securities said.

On April 16, Samsung Electronics paid out 13.1 trillion won in year-end dividends, its largest single dividend payout ever, according to company filings. Of this, the Lee family's portion was more than 1 trillion won, including for Lee Kun-hee's 4.18 per cent stake in Samsung Electronics, and for son and heir Jay Y. Lee's 0.7 per cent stake.

The younger Lee is currently serving a 30-month prison term for bribery tied to former President Park Geun-hye.

South Korean business culture believes there is merit in keeping leadership positions within the founding families of conglomerates, known in the country as chaebol, such as Samsung.

Because of this, a pro-business lobby group and others have argued for a pardon for Jay Y. Lee so he can resume his role as Samsung vice-chairman.