Excluding Samsung Electronics, which announced a large-scale share buyback plan worth 4 trillion won, the number of share repurchases by listed companies has actually decreased since the inauguration of the Lee Jae-myung government. As the possibility of policy changes has increased, such as the introduction of a bill to mandate the retirement of treasury shares within the ruling party, it is interpreted that listed companies feel burdened when buying back their own shares.
In contrast, the scale of share disposals has significantly increased this year. The increase in issuance of exchangeable bonds (EB) instead of retiring shares has a major influence. Even if it is not the reason for EB issuance, the scale of share disposals has surged by nearly 50%. There are also cases where shares have been transferred to major shareholders, using them as a means to strengthen management rights, raising criticism that this goes against the purpose of share buybacks to enhance shareholder value.
According to the Korea Exchange, from the day President Lee Jae-myung took office on the 4th until the 15th of this month, a total of 43 listed companies decided to buy back their shares. This marks a 12% (6 companies) decrease compared to 49 companies that repurchased shares during the same period last year.
The size of their share buybacks appears to have increased significantly from 464.1 billion won last year to 4.3 trillion won this year, but this is an illusion caused by Samsung Electronics' announcement of a 3.912 trillion won share repurchase. Excluding Samsung Electronics, the buyback amount shrank to 390 billion won, a decrease of more than 70 billion won.
The decrease in repurchase size over the past month is largely due to the increasing likelihood of legislative revision concerning the retirement of treasury shares. On the 9th, Kim Nam-kun, a representative of the Democratic Party of Korea, introduced a bill requiring the retirement of treasury shares within one year of acquisition, excluding cases with legitimate reasons such as employee compensation; on the 14th, Cha Kyu-geun from the Rebuilding Korea Party noted a similar bill aiming to mandate retirement within six months of acquisition, and on the 15th, Democratic Party member Kim Hyun-jung introduced another bill focusing on three years for mandatory retirement. The proposed legal revisions include the retirement of already held treasury shares.
Until now, treasury shares have been utilized not only for employee compensation and issuance of convertible bonds (EB), which are secured by the company's treasury shares, but also as a means to defend management rights. However, with the government and the ruling party pushing for legislation that would require the mandatory retirement of treasury shares acquired by corporations, the burden of acquiring treasury shares itself has increased.
According to Shinhan Investment Corp., it is expected that the number of corporations whose ownership will fall below one-third due to the retirement of treasury shares will increase from 776 to 871, a rise of 12.2% (95 corporations). These companies are likely to become targets of activist funds or be exposed to management disputes.
While share acquisitions have decreased, the number of cases where companies urgently dispose of their treasury shares has increased. The number of listed companies engaging in share disposals rose from 36 to 55 during the same period, and the scale of disposals surged from 186.2 billion won to 1.2038 trillion won, a jump of 6.46 times. In particular, EB issuance increased significantly (from 62 billion won to 1.0207 trillion won).
Some listed companies have also used their treasury shares to strengthen management rights by transferring them to allied forces or controlling shareholders. On the 26th of last month, LOTTE Corporation transferred treasury shares worth 147.7 billion won to Lotte Shopping, and on the 2nd of this month, JIN YANG PHARM transferred shares worth 2 billion won to founder Choi Yoon-hwan.
In the securities industry, it is anticipated that the share disposals by listed companies will increase further, as there is a high likelihood that the legislative amendment will be processed during the regular session.
After the amendment of the Commercial Act, there are analyses suggesting that major shareholders will directly engage in purchasing stocks. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., noted, 'While the number of shares outstanding will decrease with the retirement of treasury shares, thus increasing the major shareholder's equity ratio, the disappearance of friendly shares may reduce their overall influence compared to before,' adding, 'Major shareholders may consider buying shares to strengthen their management rights.'