S.Korean firms rush to retire treasury shares before law reform

South Korean companies are racing to cancel treasury shares ahead of a looming corporate law overhaul, with lawmakers set to weigh mandatory cancellations in September to bolster shareholder value.

Listed Korean firms have unveiled 214 share cancellation plans so far this year, nearly double the 109 announced in 2023, according to the Financial Supervisory Service.

The tally, which already exceeds last year’s 184 by 16%, includes LG Corp.'s decision to retire about 3.03 million shares, or 1.92% of its total issued shares. 

The upswing in Korean Inc.’s share retirements comes amid rising expectations that the country’s ruling Democratic Party-controlled Parliament will pass another amendment to the Commercial Act mandating the cancellation of treasury shares.

The party has flagged its intent to push the bill during the September regular session, which would mark the third corporate law revision this year.

The first, passed in early July, expanded boards’ fiduciary duties beyond company interests to those of shareholders. A second reform, approved late last month, strengthened minority shareholders’ power in proxy battles and bolstered the independence of outside directors.

Market analysts say firms are accelerating share cancellations to avoid potential disruption once the new rules take effect.

Lawmakers have so far floated five separate bills, each with different provisions.

“Each bill proposes different cancellation methods or retirement schedules after buybacks,” said an analyst at a local brokerage. “In anticipation of confusion, companies are rushing to cut treasury share holdings.”

RETIREMENT PLANS VARY

Companies are taking different approaches, from straightforward retirements to share swaps and exchangeable bond (EB) deals.

Last week, Kosdaq-listed Sam Chun Dang Pharm Co. said it would issue EBs backed by 150,000 treasury shares valued at 29.5 billion won ($21.2 million).

Analysts saw the move as a last-minute bid to raise cash without selling the shares outright before the law tightens.

In August, HyVISION System Inc. and Sebang Co., both Kosdaq-listed, swapped treasury shares worth 4.5 billion won in what was widely viewed as an effort to secure the so-called white knights, or friendly shareholders.

ANALYSTS SEE MORE CANCELLATIONS AHEAD

With more cancellations expected, analysts say investors should look for companies with heavy treasury shareholdings, relatively low price-to-book ratios (PBRs) and low ownership by their largest shareholders.

Canceling shares reduces the total number outstanding, lifting earnings per share (EPS), a key profitability metric.

The upcoming corporate reform could also spur controlling shareholders to buy more stock to safeguard their grip.

“The new corporate law reform could create opportunities to buy companies with large treasury shareholdings,” said Kim Jong-young, an analyst at NH Investment & Securities Co.

According to the Korea Exchange, companies with high treasury share stakes include InfoVine Co. (53.70%), Shinyoung Securities Co. (53.10%), Chokwang Leather (46.57%) and Makus Inc. (46.23%).

Their shares have rallied sharply as controlling shareholders’ ownership remains relatively low.

InfoVine has more than doubled since June, while Makus has surged 80%.

Write to Eun-hyeok Ryu and Jeong-Soo Hwang at ehryu@hankyung.com

Sookyung Seo edited this article.