May 22, 2024
Funds

Listed firms adopt more shareholder-friendly practices as activist funds raise pressure


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By Lee Yeon-woo

Listed firms are increasingly adopting shareholder-friendly practices, including the purchase of treasury stocks, influenced by the growing influence of activist funds and retail investors, according to industry officials, Sunday. The trend is expected to continue throughout 2024.

According to the Korea Exchange, 254 listed firms announced plans in 2023 to buy back treasury stocks amounting to a total of 9.16 trillion won ($7.05 billion) in the coming years.

In addition to these plans, the firms have already purchased treasury stocks this year, with a total investment of 7.4 trillion won. This represents a significant 21.2 percent increase compared to the purchases made in 2022, indicating a growing trend in such shareholder-friendly activities.

Companies within the financial and telecommunication sectors, which are traditionally known for their high dividend payouts, have been particularly prominent in recent acquisition activities. Leading the pack in terms of acquisition volume are Meritz Financial Group, SK Telecom, KT, KB Financial Group, Hana Financial Group and Shinhan Financial Group.

Analysts believe that the policy can create a win-win situation for both shareholders and corporations. Firms can emphasize their efforts to enhance ESG management and also utilize those efforts as part of their financial policies.

There is also a growing push for companies to not just purchase, but also cancel their treasury stocks afterward. The market’s primary concern is that if a company retains its treasury stocks without canceling them, it may later opt to sell these stocks back into the market, diluting the value of existing shares.

This movement is notably pronounced among activist funds.

Recently, the UK-based activist fund, City of London Investment Management, demanded that Samsung C&T purchase 500 billion won worth of its shares by 2024. Another UK-based fund, Palliser Capital, called for the retirement of treasury shares. Additionally, KCGI Asset Management pressed Hyundai Elevator to cancel all of its currently held treasury shares, which amount to 7.64 percent of total oustanding stocks.

As a result, there has been a noticeable increase in the retirement of treasury stocks.

In 2023, listed firms announced plans to retire 5.4 trillion won worth of treasury stocks. This amount represents 70 percent of the total treasury stocks purchased in 2023 and marks a significant increase of 500 percent compared to the average of the past five years.

Market observers indicate that the trend is expected to continue throughout 2024, backed by the growing interest of investors in shareholder returns.

“Companies are increasingly responding proactively to shareholder demands. The trend of transitioning from mere share buybacks to actual cancellations is also seen as a reflection of a more genuine commitment to shareholder returns,” said Hwang Sei-woon, a senior researcher at the Korea Capital Market Institute.

“It is anticipated that there will be a greater expansion in shareholder demands for both the acquisition and cancellation of treasury shares,” Hwang added.



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