Palliser: "Samsung Electronics Should Issue U.S. ADRs to Buy Back and Cancel Preferred Shares"

British activist fund Palliser Capital proposed that Samsung Electronics consider issuing American depositary receipts (ADRs) at a higher price than its domestic shares to fund the buyback and cancellation of preferred shares. The fund argued that Samsung Electronics should take more active measures to narrow the discount on its non-voting preferred shares.

Yonhap News Agency

On Oct. 13 local time, Palliser Capital said in a press release that its founder and Chief Investment Officer (CIO), James Smith, made the proposal at the Sohn San Francisco Investment Conference, an investment event held in San Francisco.

“The discount on preferred shares remains an overlooked issue in terms of corporate governance and capital allocation,” Smith said. “Addressing it could improve capital efficiency, unlock the potential value of both common and preferred shares, and strengthen confidence in South Korea’s capital market reforms.”

Bloomberg News reported that Samsung Electronics’ preferred shares are trading at a discount of more than 20% to its common shares. The gap between the prices of the common and preferred shares has drawn renewed attention since Samsung Electronics announced its largest-ever shareholder return plan in August. However, specific details of the share buyback plan are still to be decided after discussions by the board.

Last month, domestic hedge fund Life Asset Management also urged Samsung Electronics to buy back and cancel preferred shares until the price gap between its common and preferred shares is eliminated.

Smith cited SK hynix’s ADRs, which are trading at a premium of more than 40% to its domestically listed shares, as an example of an opportunity for Samsung Electronics. He said the company could improve capital efficiency by tapping into global investor demand for memory semiconductor stocks.

He also argued that resolving the discount on preferred shares should be the next phase of South Korea’s “Corporate Value-Up” program. Following improvements in corporate governance and expanded shareholder returns, the undervaluation of preferred shares should also be addressed. Smith estimated that more than $60 billion in potential value could be unlocked if all domestically listed preferred shares traded at the same price as their corresponding common shares.

Palliser Capital also called on Hyundai Motor, alongside Samsung Electronics, to actively pursue the buyback and cancellation of preferred shares as part of its shareholder return policy and to set specific targets for reducing the discount in its Corporate Value-Up plan. Hyundai Motor’s preferred shares currently trade at a discount of nearly 50% to its common shares.

According to Palliser Capital, the average discount on preferred shares in South Korea’s stock market is 46%. This contrasts with an average discount of less than 5% in major developed markets such as the United States, the United Kingdom and Canada.

This content was produced with the assistance of AI translation services.