South Korean chaebol reforms face resistance as Samsung shareholder pressure builds

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Chaebol reforms and Samsung pressure

Highlights

Samsung Electronics faces mounting overseas investor pressure to accelerate capital returns, preferring share buybacks and cancellations over increased dividends.
In August, Samsung announced a record 30 trillion won dividend but delayed decisions on using the remaining 55–75 trillion won set aside for shareholder returns until January.
Governance reform progress remains uneven, with large-cap chaebol affiliates resisting changes while sectoral market performance diverges sharply; KOSPI trades at 3.85x forward P/E versus MSCI World's 17.64x.

Investor pressure centers on Samsung capital returns

As first reported by Reuters, overseas investors are urging South Korea's largest corporate groups to move faster on governance reforms, with Samsung Electronics becoming a focal point of complaints over capital allocation and shareholder returns.

Samsung Electronics board chairman Shin Je-yoon met investors overseas before last month's earnings announcement after global shareholders including Capital Group, Artisan and Fidelity raised concerns, according to a person briefed on the matter. Investors argued the company's returns were too modest and said they preferred share buybacks and cancellations over higher dividends.

Samsung said in a statement that Shin regularly meets major global investors as part of its shareholder engagement efforts and that it maintains ongoing dialogue with key shareholders on returns and capital allocation. In August, the company declared a record 30 trillion won in dividends but said it would decide in January how to use the remaining 55 trillion won to 75 trillion won set aside for shareholder returns.

That stance contrasts with SK Hynix, which last month announced a shareholder return package that includes dividends, share repurchases and cancellations. Samsung Electronics and SK Hynix together account for slightly more than half of the KOSPI's market capitalisation.

Uneven reform progress shapes market valuations

Despite a strong rally this year, South Korea remains one of the world's cheapest equity markets by valuation. The benchmark index is up 35% for the year, yet after a sharp pullback since the summer it trades on a forward price-to-earnings ratio of about 3.85 times, far below MSCI World's 17.64 times.

About 70% of KOSPI stocks trade at or below book value, according to LSEG data. Samsung Electronics illustrates that gap, posting the largest quarterly operating profit by any technology company in history in the third quarter while trading at 1.87 times book value, compared with 7.8 for Micron, 29 for Nvidia and 44 for Apple.

Namuh Rhee, chairman of the Korean Corporate Governance Forum in Seoul, said banks and financial holding companies are moving ahead largely as planned under their value-up strategies, but large-cap chaebol affiliates are resisting recent governance reforms and have stepped up lobbying. A law that took effect in March makes cancellation of treasury shares compulsory by September next year, a measure critics support because such shares can be used as a takeover defence.

Market performance shows that investor response has varied sharply by sector. A gauge of Korean bank shares is up 15.9% this year and insurers have gained 48%, while shipbuilding has fallen 42% and machinery has dropped 30%.

Activist pressure is also widening beyond Samsung Electronics. Seoul-based Life Asset Management has asked Samsung's board special committee and compliance committee to review the decision to delay use of the remaining shareholder return funds until the end of January, while Palliser Capital has called for preferred-share repurchases and cancellations at both Samsung and Hyundai Motor. At S-1 Corp, an activist campaign led by Singapore-based Flashlight Capital has largely been rebuffed, although a 450 billion won share buyback announced last month has lifted the affiliate's shares.

Our earlier article on activist pressure on Big Yellow covered how hedge funds Irenic Capital Management and Ancora Holdings built sizeable stakes and urged the UK self-storage group to review strategic options, including a potential sale, arguing the shares were undervalued. We noted the push came as Big Yellow traded near a multi-year low despite solid results, against a backdrop of wider consolidation in UK listed real estate.

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