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| Shareholders wearing face masks of Samsung Electronics Co. attend the company's annual general meeting in Suwon, South Korea, Wednesday. AP-Yonhap |
By Kim Yoo-chul
Leading exporters here are expected to carry out more share buybacks due to the impact of COVID -19 to buoy up their share prices. The move follows the government easing of restrictions on buybacks, according to a report by investment bank Morgan Stanley, Wednesday.
After it adopted a stewardship code, the National Pension Service (NPS) has been pushing companies with large cash-holdings and good liquidity to boost their dividend payouts. The NPS adopted the code in July 2018 and since then has become more engaged in the management of companies in which it holds a stake.
Morgan Stanley believes South Korean companies have become more vigilant about keeping up dividends. Despite lower earnings, Korean companies have sought to increase dividend payments from either a dividend per share (DPS) or capital return yield standpoint.
It noted that share buybacks have been a weak point for companies here in terms of capital management as their value fell to 3.5 trillion won last year from 5.4 trillion won in 2018. By the end of last month, 34 companies had bought back 500 billion won worth of shares, and at the current rate the investment bank forecast buybacks for this year will be lower than last.
"We expect more companies to carry out share buybacks to buoy up share prices. The government is planning to ease rules on share buybacks, which should facilitate more buybacks, in our view," the investment bank told clients.
Share buybacks and cancellations, which are more beneficial to retail and institutional shareholders than those without cancellations, have declined "notably" since 2017. The bulk of the cancellations dropped off mainly due to Samsung Electronics as the country's top conglomerate has been less active in share buybacks in recent years.
But signs of improvement in terms of corporate governance and shareholder action are attracting institutional investors to put more money inro leading South Korean exporters.
Morgan Stanley stressed that key areas of improvement were the diversity of boards, including an increase in female and foreign directors for global companies. The bank said it has seen some large conglomerates' affiliates, such as those from Samsung, SK and LG Group, showing progress on this front.
"Visible efforts are being made by companies and if the NPS and institutional investors continue to pressure companies to boost capital returns, we expect to see positive results in terms of keeping dividends up rather than disappointing investors," the report said.
The technology sector has "considerable room" to boost capital returns as policies set by the sector are important considering its "market cap share" here. The sector accounted for 50 percent of total KOSPI earnings in 2018 but cash dividends were just 35 percent of payouts by listed firms.
"The upside of the financial and consumer sectors will depend on how earnings play out; but there is also the regulatory aspect in the case of financials. Especially for the financial sector, the situation is quite different to other industries as capital management is somewhat limited by regulatory limitations. Banks and insurers are more stringently regulated on capital compared to non-financial companies," Morgan Stanley said.
