The news that the Financial Services Commission is preparing a plan to improve the treasury stock system draws attention to companies canceling their treasury stocks.
According to DS Investment & Securities on the 13th, 15 companies have canceled their treasury stocks bought over the past three years. DI retired 10.1% of its issued shares, Meritz Financial Holdings 9%, MDS Tech 6.7%, and HL D&I 4.5%. In addition, it followed Kona I (3.6%), Kumho Petrochemical (3.4%), POSCO Holdings (3.0%), Shinhan Financial Group (2.6%), and Kumho HT (2.5%).
In the financial investment industry, it is expected that the companies involved will receive more attention along with the Financial Services Commission’s plan to improve the treasury stock system. The improvement plan is very likely to block the incentives for companies to buy back their own stocks except to improve shareholder value. Kim Soo-hyun, a researcher at DS Investment & Securities, said, “Companies that have repurchased and retired the most of their own stocks over the past three years are likely to continue to repurchase and cancel their own stocks even after for the system to change.”
According to the financial authorities, the Financial Services Commission intends to review plans to improve the treasury stock system. The financial investment industry predicts that the specific directions for improvement will be ‘mandatory retirement after buying treasury stocks’ and ‘banning the allocation of new shares to treasury stocks in the process of derivation’. On the 2nd, Vice Chairman Kim So-young of the Financial Services Commission also said at the “2023 Securities and Derivatives Market Opening Ceremony” that “we will consider improving the system” in response to the point that “the trust of the market is falling in the market. process of acquiring and disposing of treasury stocks.”
A stock buyback means that a company buys back shares that have been released on the market. Although the stock price rises temporarily because the number of shares outstanding is reduced even until a buyback, the number of shares issued is reduced only when retirement follows, which has the effect of increase the value of existing shareholders’ shares.
Researcher Kim said, “In the case of the United States, unretired treasury stocks are exempt from market capitalization calculations, and in the case of resale, requirements such as the obligation to re-register for the approval of the Securities and Exchange Commission. have been strengthened, just like when the stocks were first announced. On the other hand, he explained, “In Korea, most of the cases are for the purpose of protecting management rights rather than treasury stocks to improve shareholder rights .” Rather than canceling the purchased treasury stocks, the new company’s new stocks are allocated to treasury stocks during the spin-off process to strengthen the dominance of the controlling shareholder, or to strengthen control rights through a stock exchange’ r treasury with friendly forces.
When the treasury stock system improvement plan is implemented, some advise that companies that have bought a lot of treasury stocks should be cautious about investing. Researcher Kim said, “Companies that already have a lot of treasury stocks but have not taken any action (when the system is implemented) may pour stock into the market and become a factor in the decline in stock prices. “
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