The three heirs to South Korea's largest family-run conglomerate Samsung Group stand to make astronomical gains from their shares in group affiliate Samsung SDS Co. to be listed later this week, according to industry sources on Wednesday, giving them the cash resources to inherit the business from their father whose health had recently deteriorated.

In early 1999, Samsung SDS, which offers IT services for Samsung Group companies, sold bonds with warrants (BW) to Chairman Lee Kun-hee's children at a price far cheaper than the market value.

Lee Jay-yong, the vice chairman of Samsung Electronics and the ailing chairman's only son, spent about 10 billion won (US$9.07 million) to acquire 11.25 percent of Samsung SDS shares, paying 1,180 won on average per share, according to Chaebul.com, which tracks the nation's conglomerates. His sisters, Lee Boo-jin and Lee Seo-hyun, spent 3.4 billion won each to buy them at an average of 1,112 won per share.

Samsung SDS shares are traded at around 355,000 won in the over-the-counter market, putting the combined stock value of the three siblings at approximately 5.23 trillion won, it said, roughly 307 times their initial investment.

Market watchers say the shares, to be floated on Friday at 190,000 won, may well go up to 500,000 won from the first trading day.

The three siblings already have received 33.7 billion won in dividends from 2003-2013, surpassing what was spent to buy the stocks.

Samsung SDS stocks were nearly 135 times oversubscribed during the two-day pre-order last week, as retail investors tried to grab a piece of what is expected to be the second-largest initial public offering in the country this year at an estimated 1.16 trillion won.

Cheil Industries, essentially Samsung Group's holding company, is scheduled to be listed in December.

The three siblings are the grandchildren of Lee byung-chul, the founder of Samsung. The stock listings and across-the-board restructuring under way at the group are seen as transfer of management to the third-generation of the family. Their father, chairman Lee, is recuperating from a heart attack in May, although his health condition is mostly kept secret.

The children's stock acquisition in Samsung SDS, made through a number of different financial instruments including convertible bonds purchase, became a matter of prosecution investigation after a former member of the group's legal team exposed a web of bribery, book cooking and slush funds at Samsung to hide tax evasion and other unethical business practices.

In 2008, a Seoul court gave the 72-year-old Lee Kun-hee a suspended prison term for illegal bond trading of Samsung SDS, saying it caused financial damage to group subsidiaries. He was later pardoned by former president Lee Myung-bak in 2009.

Although the cash coming from the two IPOs -- SDS and Cheil -- is expected to help cover the inheritance taxes, experts say the Lee family is not likely to use the fund any time soon considering legal barriers and potential backlash. 

By law, controlling shareholders with special interests are not allowed to sell their stocks for six months from the day of the listing. 

"It may be easy for large shareholders to sell shares of Samsung SDS for wealth transfer, but immediate selling could stir negative sentiment (against the Lee family)," Lee Sang-heon, a researcher at Hi Investment and Securities, said. "There is a high possibility that (they) may use the shares as payment instead of cash."

Samsung SDS' sales reached 4.63 trillion won last year, up from 1.7 billion in 2003, mostly from business earned from other group affiliates. The sales ratio of internal trading has grown from 67.04 percent to 71.44 percent during the period, according to its regulatory filing. 

Calls have been growing for Samsung Group to unwind its circular shareholding structure that allows the owner family to control about 70 affiliates with a total stake of less than 2 percent. The Park Geun-hye administration is also pressuring family-owned conglomerates to adopt holding company structures to improve transparency, offering tax incentives to those who do. (Yonhap)