KT unveiled a plan in Nov. 2024 to buy back and cancel 1 trillion won worth of treasury shares as part of a "value-up" initiative to lift corporate value, but the company now faces a situation where it is hard to proceed with cancellations at the pace it wants. That is because the foreign equity ratio is nearing the legal ceiling of 49%, and a large-scale cancellation of treasury shares could push it over the limit.
As of the 26th, KT's foreign equity ratio is 49%. It has remained at this level for more than a year and a half since reaching the limit in Nov. 2024. Even in the recent bull market where the KOSPI broke above the 8,000 level, foreign investors have been reluctant to release KT equity. In the market, some even say it is "a situation where they can't cancel treasury shares because foreigners just won't sell."
In fact, KT bought 250 billion won worth of treasury shares last year but reportedly could not proceed with cancellations. It plans to secure an additional 250 billion won worth this year, but the industry expects cancellations will not be easy due to the foreign equity cap. Even after announcing a 1 trillion won value-up plan, the execution of the core pledge—treasury share cancellations—has effectively been blocked by regulatory constraints.
Through the value-up program in Nov. 2024, KT unveiled a plan to buy back and cancel a total of 1 trillion won in treasury shares from 2025 to 2028. It also presented a shareholder-return policy to use 50% of adjusted net income on a separate financial statement basis as resources for dividends and share buybacks. Emphasizing that it would not stop at simple purchases but also proceed with cancellations to raise earnings per share (EPS), KT has been regarded as a representative value-up stock.
The problem is that KT is a key telecommunications operator. Under the current Telecommunications Business Act, the foreign equity ratio of key telecommunications operators such as KT, SK Telecom, and LG Uplus is capped at 49%. The regulation reflects the fact that telecom networks are national backbone infrastructure. If KT cancels treasury shares while the number of shares held by foreign investors remains unchanged, the total number of outstanding shares decreases.
For example, if the company eliminates a large amount of treasury shares while the number of shares held by foreigners remains unchanged, the total share count falls and the foreign equity ratio could exceed 49%. From KT's perspective, even if it wants to cancel treasury shares to enhance shareholder value, it cannot ignore the risk of breaching the legal limit.
The irony is that KT's investment appeal is becoming an obstacle to canceling treasury shares. The industry views KT as being perceived by foreign investors as a telecom infrastructure asset with stable high dividends and defensive characteristics. Even amid heightened volatility in global stock markets, KT has maintained relatively stable cash flows and shareholder-return policies. This appeal has encouraged long-term holdings by foreign investors and, as a result, has become a factor preventing treasury share cancellations.
Generally, when treasury shares are canceled, the number of shares in circulation declines, improving earnings per share. Even with the same profit, per-share value rises because there are fewer shares to divide it by. Uncanceled treasury shares, on the other hand, can be used later for exchangeable bond (EB) issuance, employee compensation, or as funds for mergers and acquisitions (M&A). For this reason, investors have increasingly come to believe that "what matters more than buying is certain cancellation."
In KT's case, the gap is widening between buying treasury shares and actually canceling them. If the company continues to hold last year's purchases and adds this year's planned purchases on top, the shareholder-return amount under the value-up plan will grow, but the earnings-per-share improvement the market expects could be delayed. While buybacks themselves support the share price on the downside, without cancellations, doubts about the strength of shareholder returns are bound to remain.
In the securities industry, some suggest KT may try to maintain shareholder-return effects by canceling treasury shares in stages, taking into account the foreign equity ratio, or by simultaneously expanding dividends.
Ryu Jong-gi, an adjunct professor at the Sogang University College of Media, said, "KT is a leading value-up stock in Korea, but it also carries the particularity of foreign equity regulations," and noted, "The recent situation can be seen as a case where foreigners' preference for KT has ironically made treasury share cancellations more difficult."
A KT official explained, "Because treasury shares are excluded from dividend eligibility, buybacks alone effectively reduce the number of shares in circulation, and reflecting the impact of buybacks and other factors that reduced the actual number of dividend-eligible shares, the minimum dividend amount for this year has also been raised from the previous level."