South Korean firms cancel $31 billion in treasury shares amid new law

South Korea's corporate landscape is witnessing a significant shift in how major conglomerates manage their treasury stocks, driven by a recent amendment to the Commercial Act. In the first quarter of this year, companies collectively cancelled treasury stocks worth a staggering 42.5 trillion won (approximately $31 billion), a figure more than triple the total for the entire previous year. This dramatic increase is a direct response to new regulations mandating the cancellation of treasury stocks within specific timeframes, aiming to enhance shareholder value and corporate transparency.

Leading this trend are titans like Samsung Electronics and SK Hynix, which together accounted for over 63% of the total cancellations in the first quarter. Samsung Electronics alone cancelled 14.9 trillion won worth of its own shares, while SK Hynix followed with 12.2 trillion won. This move is largely seen as a positive development for minority shareholders, as reducing the number of outstanding shares typically increases earnings per share (EPS) and can lead to a higher stock price. The Hankyoreh, reflecting a common perspective among South Korean media and investors, highlights this as a move towards greater shareholder returns and a more equitable distribution of corporate profits.

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The third amendment to the Commercial Act, which mandates the cancellation of treasury stocks, is accelerating the cancellation of treasury stocks by major large corporations.

However, the implications extend beyond just share prices. The mandatory cancellation of treasury stocks also impacts the control structure of these family-controlled conglomerates. For instance, Samsung Electronics' controlling shareholders' stake has fallen below 20% following the cancellations. While this might be viewed internationally as a step towards better corporate governance and reducing the influence of founding families, within South Korea, the discussion is nuanced. The Hankyoreh's reporting acknowledges the potential reduction in control but frames it within the context of regulatory compliance and the broader goal of improving shareholder value, a perspective that resonates with the public's increasing demand for corporate accountability.

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If treasury stocks are cancelled as planned, the company whose controlling shareholders' governance will decrease the most is Taekwang Industrial.