Samsung Electronics (005930.KS) has signaled its largest-ever shareholder return, worth around 100 trillion won, yet the stock market's response has been cold. On the 21st, Samsung's board approved a plan to return between 90 trillion and 110 trillion won to shareholders this year, beginning with a 30 trillion won cash dividend within the third quarter. But the share price has languished. When SK hynix (000660.KS) earlier announced a shareholder return package that included canceling 40 trillion won worth of treasury shares, its stock jumped 12.73% the next day. Samsung Electronics, by contrast, plunged 8.7% on the 24th. Samsung Life Insurance (032830.KS), Samsung Electronics' largest shareholder, fell alongside it by 13.09%.
Part of the reason Samsung's shares tumbled is that the size of the return fell short of expectations. But the dominant analysis is that the company has been unable to readily pursue the share cancellations the market wants because it is constrained by the Act on the Structural Improvement of the Financial Industry, one of the laws that separate financial capital from industrial capital. Article 24 of the act, created during the 1997 foreign-exchange crisis, bars financial companies from owning a combined stake of more than 10% in non-financial affiliates. If Samsung Electronics were to cancel treasury shares and thereby reduce its outstanding shares, Samsung Life Insurance and Samsung Fire & Marine Insurance (000810.KS) — whose stakes are already set at the 10% ceiling — would have to sell shares they hold, which could translate directly into governance risk for the company.
Cancellation of treasury shares is a leading value-up tool that can raise shareholder value. The government and the Democratic Party of Korea pushed through a "third revision of the Commercial Act" that makes canceling treasury shares mandatory within one year, championing it as a way to resolve the "Korea discount." Yet they have not touched the financial-industrial separation rules tied to those very share cancellations. President Lee Jae-myung last year announced a policy of easing financial-industrial separation rules to advance advanced industries, but progress has stalled. Even the measures put forward so far — such as easing the requirement that a holding company's second-tier subsidiary hold a 100% stake in its own subsidiary — are being applied only conditionally, and only outside the greater Seoul area.
An outdated financial-industrial separation rule that has stood for more than 40 years must not be allowed to erode the value of Korean companies that need to compete on the global stage. The line between finance and non-finance has already broken down, and if clinging to an anachronistic partition delays corporate investment in new industries and financial innovation, it could deal a fatal blow to national competitiveness. How long will the government keep merely stoking the fire without acting? At the very least, the overhaul of financial-industrial separation rules — such as carving out exceptions for national strategic industries like artificial intelligence and semiconductors — must not be put off any longer.
