SEOUL (Reuters) - Shares in Samsung SDS Co Ltd, the IT services arm of the Samsung Group, doubled on debut on Friday, unlocking $5 billion for the conglomerate’s three heirs as they plan a generational succession at South Korea’s dominant conglomerate.
SDS is 19.05 percent owned by the three children of Samsung Electronics Co Ltd Chairman Lee Kun-hee, 72, who has been hospitalized since suffering a heart attack in May.
While the children did not sell any of their shares in SDS’s $1.1 billion initial public offering, analysts said the listing put a value on their holdings and would free up cash to pay inheritance taxes or increase holdings in group companies.
“It’s not a company that’s near the top of Samsung Group’s ownership structure. It is the company most fit to maximize profits for the group’s major shareholders,” said Eugene Securities analyst Yoon Hyuk-jin.
SDS became the 5th most valuable company on the South Korean bourse with a market capitalization of about $26 billion as of Friday’s opening. With its strong debut, the Lee heirs’ stake value is close to an expected inheritance tax bill of up to $5.5 billion.
The SDS listing was South Korea’s largest since May 2010 and will be followed by the expected $1.2 billion to $1.4 billion December IPO of the Samsung Group’s de facto holding company, Cheil Industries Inc.
The Lee heirs, including Samsung Electronics vice chairman J.Y. Lee, own 41.8 percent of Cheil. At the top of Cheil’s indicative 45,000-53,000 won per share IPO price range, their combined stakes would be worth 2.8 trillion won ($2.55 billion).
SDS’s first-day jump had been expected.
Given the Lee siblings’ large ownership stakes, investors expect it to add new businesses or boost dividend payouts to increase the value of the family members’ stakes - a pattern seen at other South Korean conglomerates, known as chaebol.
Hyundai Glovis, a non-core Hyundai Motor Group affiliate 32 percent-owned by group heir apparent Chung Eui-sun, and SK C&C, an IT services company 33 percent-owned by the chairman of SK Holdings, saw revenue or dividend payouts climb after going public.
Also, just 7.9 percent of SDS shares were sold in the IPO, creating a scarcity premium for what is expected to become a key constituent of Seoul’s main Kospi index.
“This company has good business categories. It will continue to add value, revenue and market capitalization, eventually helping with the succession,” said Kim Hyun-su, a fund manager who invested in Samsung SDS shares at IBK Asset Management.
SDS opened trade at 380,000 won, valuing it at about 29 trillion won, compared with an IPO price of 190,000 won. The stock lost some ground to 342,500 won as of 0452 GMT (11.52 p.m. EST Thursday), but remained more than 80 percent above its IPO price.
SDS, which also provides logistics services, generates about 80 percent of its sales from group affiliates, including about 65 percent from Samsung Electronics and its subsidiaries.
That dependency dented earnings in the July-September quarter, when SDS reported a 131.4 billion won operating profit, down 9.3 percent on the year, partly due to fewer shipments of Samsung Electronics products. [ID:nL4N0SM0FS]
Still, SDS is seen as having room to grow, as it handles less than 20 percent of Samsung Electronics’ logistics in the European and the North American markets.
SDS’s biggest shareholder is Samsung Electronics with a 22.6 percent stake.
Editing by Stephen Coates and Tony Munroe