Samsung Eyes Preferred Share Buyback to Narrow Korea Discount
NEWZA Editorial Team•
⚡ Key Financial Takeaways
Samsung’s preferred shares trade about 45% below its common stock, the widest gap in more than a decade.
A buyback of preferred shares would avoid breaching the 10% voting‑share limit for Samsung’s affiliates.
The move aligns with Seoul’s governance reforms aimed at eliminating the long‑standing ‘Korea discount.’
Other Korean firms, such as Hyundai Motor and LG Chem, have issued preferred shares and are watching Samsung’s actions closely.
Analysts expect a narrowing of the discount to ripple across the Korean corporate market, improving price discovery.
💡 Why It Matters
Samsung’s action could reduce the valuation gap that has long characterised Korean equities, thereby improving price discovery and investor confidence. By staying within ownership limits, the company preserves its family‑controlled structure while still rewarding shareholders. A successful buyback may also encourage other firms to reassess their preferred‑share pricing, potentially accelerating the elimination of the Korea discount.
Samsung’s Preferred Share Discount Samsung Electronics’ non‑voting preferred shares are currently priced at roughly 45 % below the company’s common equity. This steep discount is the widest seen in more than ten years, even after a recent narrowing from a 37 % spread.
Why a Buyback Matters A repurchase of preferred shares would reduce the discount, thereby tightening the valuation gap between preferred and common stock. It would also allow Samsung to keep its affiliates’ voting stake below the 10 % threshold mandated by Korean law, avoiding forced divestments.
Regulatory Context Under Korean regulation, Samsung’s financial affiliates cannot hold more than 10 % of the company’s voting common shares. A large buyback of common equity could push affiliates over this limit, forcing sales. Repurchasing preferred shares sidesteps this restriction while still boosting per‑share value.
Market Reaction and Broader Implications Investors see the preferred‑share discount as a symptom of the broader “Korea discount” – a persistent undervaluation of Korean equities. Analysts such as Han Sangkyoon of Quad Investment Management and Molly Pieroni of Yacktman Asset Management argue that a Samsung buyback could trigger a re‑rating of preferred shares across the market, improving price discovery as foreign participation grows.
Corporate Examples Hyundai Motor and LG Chem have issued preferred shares to raise capital without diluting founding families’ voting power. Hyundai’s own buyback program includes preferred shares, and its premium over common stock currently exceeds 50 %. Retail investors, like Kang Dong‑oh, have campaigned for higher valuations of preferred shares, citing the potential dividend‑payout savings.
Samsung’s Shareholder‑Return Program Last month, Samsung announced a plan to spend up to 110 trillion won (≈ $81.8 billion) on shareholder returns, one of the largest ever worldwide. While the company did not specify the portion earmarked for buybacks, the 26 % gap between preferred and common shares suggests a significant opportunity.
Potential Ripple Effects If Samsung proceeds with a preferred‑share buyback, it could set a precedent for other Korean firms to follow suit. A narrowing discount would support the government’s governance reforms and could attract more international investors by improving market efficiency.
Conclusion Samsung’s potential preferred‑share buyback is more than a financial manoeuvre; it is a strategic step that could reshape the valuation dynamics of Korean equities, align with regulatory limits, and support broader market reforms.
🏛️ Background & Context
Preferred shares in Korea are a popular vehicle for capital raising that preserves voting control for founding families. They typically trade at a discount to common shares, reflecting limited liquidity and market access. The Korea discount refers to the persistent undervaluation of Korean equities relative to global peers, a focus of recent governance reforms.
👁️ What To Watch Next
Watch for Samsung’s formal announcement of a preferred‑share buyback, the size of the program, and any subsequent price movements. Monitor how other Korean corporates, especially those with large preferred‑share discounts, respond. Regulatory updates on the 10 % voting‑share limit and further governance reforms will also be key.
