[Edaily Reporter Kim Kyung-eun ] SamsungElectronics(005930)has unveiled a shareholder return plan worth up to 110 trillion won, leading to analysis that SamsungElectronics preferred shares and SAMSUNG C&T CORPORATION(028260)could benefit. Given that restrictions on the buyback and cancellation of common shares stem from the ownership limits imposed on financial affiliates holding SamsungElectronics shares, the proportion of preferred share buybacks and cancellations is expected to increase. SAMSUNG C&T CORPORATION is also expected to see its capacity for shareholder returns expand as dividends received from SamsungElectronics surge.

Kim Soo-hyun, head of the Research Center at DS Investment & Securities, stated in a report on the 24th, “Since the ownership stakes in SamsungElectronics common stock held bySamsung Life Insurance(032830)and SamsungFire&MarineInsurance(000810)are capped at 10%, any additional cancellation of common stock would cause both companies’ ownership stakes to exceed the 10% limit set by the Act on the Structural Improvement of the Financial Industry.”

On the 21st, SamsungElectronics announced that it would allocate 90 trillion to 110 trillion won for shareholder returns this year. Of this amount, approximately 30 trillion won will be distributed as cash dividends, including the regular third-quarter dividend, while specific plans for the remaining 60 trillion to 80 trillion won will be decided by the board of directors in late January of next year.

DS Investment & Securities forecasts that SamsungElectronics will allocate approximately 10 trillion to 20 trillion won to share buybacks and cancellations and approximately 50 trillion to 60 trillion won to cash dividends as part of the additional shareholder returns to be implemented early next year. These figures take into account the fact that SamsungLife Insurance and SamsungFire&MarineInsurance disposed of approximately 1.5 trillion won worth of SamsungElectronics shares via a block trade in March, ahead of SamsungElectronics’ share cancellation.

However, analysts suggest that the proportion of preferred shares in the share buyback and cancellation process may increase compared to the past. Since SamsungElectronics’ preferred shares do not carry voting rights, they are excluded from the calculation of ownership limits for financial affiliates under the Industrial-Financial Interlinking Act. In other words, by purchasing and canceling preferred shares, Samsung Life Insurance and SamsungFire&MarineInsurance can proceed with the cancellation of treasury shares without having to sell additional stakes in SamsungElectronics.

Researcher Kim explained, “Considering the issues arising under the Financial Services and Industrial Activities Interlocking Prevention Act when common shares are retired, we cannot rule out the possibility that the volume of preferred shares purchased and retired will increase as part of the funding for SamsungElectronics’ treasury share retirement,” adding, “The retirement of preferred shares is a measure that can be implemented without the financial affiliates selling their stakes in SamsungElectronics.”

There is also a precedent where SamsungElectronics increased the proportion of preferred shares purchased when the price gap between common and preferred shares widened. Since its founding, preferred shares have accounted for approximately 16.9% of SamsungElectronics’ total treasury stock cancellations; however, during its first share buyback program in 2015—when the price gap between common and preferred shares was significant—the company allocated 30% of the total purchase amount to preferred shares. Currently, the premium of common shares over preferred shares stands at around 36%, which is at the upper end of the historical range.

DS Investment & Securities analyzed that if Samsung Electronics were to retire 20 trillion won worth of its own shares, allocating 30%—or 6 trillion won—to preferred shares would reduce the amount of common shares to be retired to 14 trillion won. Consequently, the Samsung Life Insurance and SamsungFire&MarineInsurance holdings of SamsungElectronics that would need to be disposed of would also decrease to approximately 1.4 trillion won. This is 600 billion won less than the 2 trillion won expected if all shares were common stock, and is similar to the 1.5 trillion won from the actual block deal last March.

Expanding the repurchase of preferred shares could serve as an opportunity to narrow the price gap between SamsungElectronics’ common and preferred shares. Center Director Kim stated, “We assume that the company will carry out a share buyback and cancellation of at least 10 trillion to 20 trillion won,” adding, “If a larger portion of these funds is allocated to preferred shares, it will not only reduce the burden on financial affiliates to sell their SamsungElectronics stakes but also provide a rationale for narrowing the preferred share price gap.”

SAMSUNG C&T CORPORATION is also expected to benefit from SamsungElectronics’ large-scale cash dividends. DS Investment & Securities estimates that the dividends SAMSUNG C&T CORPORATION receives directly from SamsungElectronics will increase from 1.76 trillion won this year to as much as around 4 trillion won next year. When combined with dividends received from other affiliates, such as Samsung Life Insurance and Samsung SDS, dividend income from affiliated companies is projected to rise from 1.98 trillion won this year to 4.36 trillion won next year.

SAMSUNG C&T CORPORATION has a policy of redistributing up to 70% of the dividend income it receives from affiliated companies. Daol Investment & Securities projected that, assuming a 70% redistribution rate, SAMSUNG C&T CORPORATION’s dividend per share (DPS) would rise from 2,800 won last year to 8,500 won this year and 18,600 won next year. This represents a 204% increase compared to last year and a 119% increase compared to this year.