With the ruling bloc likely to push within the year the third amendment to the Commercial Act centered on mandating the cancellation of treasury shares, it appears listed companies moved in advance to dispose of their treasury shares.
According to the Korea Exchange (KRX) disclosure channel (KIND) on the 8th, there were 41 filings to dispose of treasury shares over the past six months (May 7–Nov. 7). That was more than triple the 12 in the same period a year earlier.
The biggest reason cited for the surge in treasury share disposals is the third amendment to the Commercial Act being pushed by the government and the Democratic Party of Korea. The plan is expected to include a mandate to cancel treasury shares, and listed companies appear to have moved to dispose before their options shrink once the law takes effect.
Issuing exchangeable bonds (EB) using treasury shares is the most common. The number of exchangeable bond filing cases jumped from five in June, four in July, and eight in August to 36 in September. That is because if treasury shares without voting rights are issued as exchangeable bonds and handed to friendly parties instead of being canceled, the voting rights are restored and can be used to defend management control.
However, as financial authorities put the brakes on issuing exchangeable bonds using treasury shares, the number of exchangeable bond issuances also fell to eight from Oct. 20 to Nov. 7.
Listed companies are seeking workarounds. GREEN Life Science moved to dispose of 450,000 treasury shares through a block deal after hours to "secure operating funds for the corporations." FOOSUNG Co. and FIRSTEC sold their treasury shares to their parent company, FOOSUNG Holdings.
An official at a company that recently decided to dispose of treasury shares said, "We could not help but be concerned about regulations to be implemented at year-end," adding, "If we hold treasury shares for the long term, we could find ourselves in a situation where we must cancel them unconditionally."
Investors who had expected the cancellation of treasury shares in line with the third amendment to the Commercial Act are voicing complaints. Canceling treasury shares reduces the number of shares outstanding and boosts share value, so stocks with a large share of treasury holdings had risen in advance, but as companies moved to issue exchangeable bonds, share prices fell.
There is also a concerned view that, with few means to defend management control, mandating the cancellation of treasury shares could lead to more frequent disputes. An executive at a business organization said, "Requests to establish management defense mechanisms, including a poison pill, are not being reflected in policy at all," adding, "Balance is needed."