Disclosures of treasury share disposals by South Korean listed companies have all but disappeared after regulators tightened rules barring the issuance of exchangeable bonds (EBs) backed by treasury stock. Disposal filings, which topped 70 in the second half of last year, fell to 41 in the first half of this year and then to just one in July and August. Buybacks, by contrast, remained brisk, signaling a rapid shift in how companies use treasury shares — from selling them to acquiring and retiring them.
According to the Korea Exchange on the 3rd, a total of 137 treasury share disclosures were filed over the two months from July 1 through the 31st of last month. Of those, 136 were acquisitions and just one was a disposal. Disposals accounted for only 0.7% of the total, meaning the selling of treasury shares has effectively vanished.
The picture was different in the first half of the year. Of 342 treasury share disclosures filed from January through June, 301 were acquisitions and 41 were disposals. Disposals made up 12.0% of the total, far higher than in the past two months. Disposals were even more frequent in the second half of last year. From July through December, 235 treasury share disclosures were filed, comprising 159 acquisitions and 76 disposals. Disposals accounted for 32.3% of all filings.
The shift is seen as tied to an overhaul of treasury share rules that took effect on June 30. Under the revised enforcement decree of the Capital Markets Act and related rules, issuing EBs backed by treasury stock is now entirely prohibited. The measure followed criticism that treasury shares could be used to secure friendly stakes for controlling shareholders, defend management control or circumvent mandatory retirement requirements.
Rules on disposals were also tightened. Disclosure requirements covering treasury share holdings and disposal plans were expanded to all listed companies holding treasury stock, while disposals during trust contract periods and on-market disposals to unspecified buyers were restricted. The changes limit how treasury shares can be sold while requiring companies to disclose the purpose of a disposal and the counterparty more transparently.
Keumkang Steel was the only company to file a disposal disclosure in the two months since the overhaul. In July, the company decided to sell 514,000 treasury shares at 4,460 won each, for a total of 2.29244 billion won, to fund the replacement of machinery and equipment. The sale was conducted through off-hours block trades to three buyers, including Sewon Steel, making it far removed from an EB issuance or an on-market disposal to unspecified buyers.
Buybacks, meanwhile, have continued at a strong pace. Acquisition disclosures totaled 301 over the six months of the first half, but reached 136 in July and August alone — roughly 45% of the first-half total in just two months.
An official in the financial investment industry said that the greater the market volatility, the more buybacks are read as both a support for share prices and a signal that a company views its current stock price as undervalued. In declining or range-bound markets, shareholder return measures such as buybacks can serve as a factor highlighting the investment appeal of individual stocks, the official said.
