Samsung stocks rebound but Lee's detention raises doubts on pledges for change

© Reuters.

By Joyce Lee

SEOUL (Reuters) - Shares in Samsung Electronics (LON:0593xq) and affiliates rebounded on Tuesday, reversing losses stemming from Samsung Electronics Vice Chairman Jay Y. Lee's receiving a two-and-a-half year prison term on Monday.

Analysts said the short-lived impact of Lee's detention on share prices is similar to what happened the first time Lee was imprisoned in 2017, despite what may be more reactivity to news and rumours because of increased retail investor participation in the stock market.

But corporate governance experts fear Lee's pledge to make compliance a top priority may lose steam, especially because it is no longer a part of his case for leniency.

Lee entered a detention centre on Monday after the Seoul High Court sentenced him to prison for bribing an associate of former President Park Geun-hye and other charges. Because he has already served one year in prison, he will serve 18 more months.

In his final statement to the court in December, Lee pledged a "new Samsung", including guaranteeing labour union activities and not handing over management rights to his children at the family-controlled conglomerate.

Moreover, he promised "stricter compliance and transparent operation" of the so-called Business Support Task Force, a team in Samsung Electronics, some of whose executives a Seoul court found guilty of destroying evidence about an affiliate's accounting practices, said to be aimed at helping boost Lee's control of the tech giant.

"I will transform my mind and stance and create a thorough compliance system that can resist undue pressure," Lee said.

'CHALLENGING THE OWNER FAMILY'

An independent compliance committee, set up last year after the Seoul High Court began proceedings, said it would continue meeting with CEOs and making recommendations despite being dismissed by the court on Monday as ineffective.

"Regardless of the outcome of the trial, the committee is determined to continue its responsibilities faithfully," a committee official told Reuters, adding that the members have a two-year term, which can be extended.

But corporate governance experts expressed scepticism, noting that such efforts are likely to peter out.

"The committee is an organisation hastily formed for the trial. There were and still are extensive compliance organisations within each affiliate, but the problem was that none of them could check the actions of the conglomerate's owner family," said Park Sang-in, professor at Seoul National University and a corporate governance expert.

Samsung shares may show more volatility in the short term in particular with the recent influx of retail investors riding a liquidity boom, including those hoping for more generous dividend payouts by Samsung intended to "create a good corporate image" in Lee's defence, said Park Sung-soon, an analyst at Cape Investment & Securities.

After falling on Monday and early Tuesday, shares in Samsung Electronics and affiliates Samsung C&T and Samsung Life Insurance reversed losses and rose 2.5%, 0.7% and 0.5% respectively as of 0621 GMT, compared with a 2.6% rise in the wider market.

"On the day (Lee) went to jail in 2017, stocks fell, but in the long run, it did not affect the price much. The vice chairman's imprisonment does not change the company's fundamentals," Park of Cape Investment added.

In 2017-2018, during Lee's year-long detention, Samsung Electronics shares rose 27% on the back of strong memory chip demand.

Retail investors were net buyers worth 177 million won of Samsung Electronics stocks in 2020, buying from foreign investors and South Korean institutions, according to Korea Exchange data.