Shin Chang-jae, chairman of Kyobo Life Insurance, approached the long-awaited transition to a holding company by resolving part of the 'put option dispute' with financial investors (FI). This has led to predictions of accelerated succession of management to the third generation. Chairman Shin had not previously made specific remarks about the succession of management, so it is expected that he will naturally pass the company on to his children.
However, Chairman Shin has already surpassed the age of 70, and due to the dispute with FI, he has spent about seven years without beginning the succession process. His eldest son, Shin Jung-ha, executive director of Kyobo Life Insurance, and his other sons do not hold any equity in Kyobo Life Insurance, leading to analyses in the insurance industry that suggest trillions of won will be needed for the succession.
According to the insurance industry on the 9th, Shin Chang-jae and the private equity firm Affinity Equity Partners, which had been in a dispute regarding the put option, sold 9.05% of Kyobo Life Insurance's equity to the SBI Group for 234,000 won per share. Another FI, the Government of Singapore Investment Corporation (GIC), sold 4.5% of its equity at the same price to a special purpose company (SPC) established by Shinhan Investment Corp.
As a result of this sale, the equity directly held by Chairman Shin remained unchanged, but friendly equity increased. SBI Group, which purchased equity this time, is known to have a close relationship with Kyobo Life Insurance. When combining SBI Group's 9.05% equity with the 5.12% equity held by Shin In-jae, Shin Kyung-ae, Shin Young-ae, and the 39.11% equity directly held by Chairman Shin (including the equity acquisition from Alpha Capital), the total friendly equity exceeds half.
Currently, the governance structure of Kyobo Life Insurance is not complex, so the burden of the costs associated with the transition to a holding company is not expected to be significant. Currently, Chairman Shin holds a majority stake in Kyobo Life Insurance, which retains more than half of the equity in 13 affiliated companies, including Kyobo Securities, Kyobo Bookstore, and Kyobo Asset Trust. If the method of splitting is chosen, a new holding company will be created, and existing shareholders of Kyobo Life Insurance will each hold equity in the new company according to their equity percentage.
Succession of management is expected to begin after the transition to a holding company. Shin Jung-ha, the eldest son and executive director, joined Kyobo Life Insurance as a vice administrator in May 2022 and is currently responsible for the group's digital and management strategies. His second son, Shin Jung-hyun, is currently working as the head of the digital strategy department at Kyobo Life Planet.
After the transition to a holding company, there are various scenarios for management succession. However, just as Chairman Shin inherited all of Kyobo Life Insurance's equity from his father, passing on the holding company's equity is considered a straightforward method. This involves passing on part of the equity while entrusting the management of affiliated companies.
Chairman Shin also inherited about 40% of the equity in Kyobo Life Insurance from Shin Yong-ho, the honorary chairman and founder of the Kyobo Group, and paid the historically largest inheritance tax of 183 billion won in 2003 with Kyobo Life Insurance shares.
If all the equity is gifted, the tax burden becomes significant. Considering that FI sold Kyobo Life Insurance shares at 234,000 won per share, the value of Chairman Shin's 39.11% equity amounts to 1.87 trillion won. If his two sons receive all of Chairman Shin's equity as a gift, they will have to pay a gift tax of 1.122 trillion won (including the major shareholder premium at a 60% gift tax rate). If Kyobo Life Insurance goes through the transition to a holding company and an initial public offering (IPO), the share price is expected to rise, resulting in an increase in the gift tax.
When the succession process begins, the two sons will first need to prepare for the succession costs. There is a high possibility that they will opt for annual payment, which involves providing the gifted shares as collateral to tax authorities and spreading out the payment of gift tax. However, unlisted company shares are not accepted as collateral.
It is also crucial to prove the management capabilities of the third generation. Shin Jung-ha, the executive director, has led the group's digital transformation by serving as the head of the data strategy team, but evaluations suggest that he has not produced tangible results. The head of the digital strategy department, Shin Jung-hyun, must also generate results from Kyobo Life Planet, which has not emerged from deficits after 12 years since its launch. There are cautious predictions in the insurance industry that Chairman Shin may gift some of his equity to his two sons while entrusting the group's management to professional managers.