Buybacks pull up shares

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Buybacks pull up shares

Published: 16 Nov. 2015, 20:41

Companies listed on the benchmark Kospi and secondary Kosdaq that bought back their own stocks saw their stock prices increase at a sharper pace than those that did not.

According to the Korea Exchange on Monday, a total of 91 companies have bought back their shares of Korea’s bourses from the beginning of this year through Nov. 12, up 68.5 percent year-on-year.

The total dollar value of buybacks from the 91 companies was estimated at 9.22 trillion won ($7.86 billion), up 407 percent from last year’s 1.8 trillion won.

Forty-two companies listed on the Kospi bought back stocks worth 9.02 trillion won, announced at the regulatory filing, which was 416.2 percent larger than the same period last year. Meanwhile, 49 companies in the smaller-cap Kosdaq market said they will buy back shares worth 200 billion won, which is also 181.9 percent larger year-on-year.

Companies who announced buybacks saw larger returns by the end of the day of their announcement than companies that didn’t.

Kospi-listed companies showed an average 10.92 percent climb in their closing price after carrying out the buybacks, during which the Kospi index rose only 2.53 percent. Kosdaq-listed tech companies also saw their stock prices rise by an average 6.54 percent during the same period, while the Kosdaq rose 4.79 percent.

This year, SK showed the year’s largest buyback in the Kospi at 899.5 billion won, followed by SK Hynix’s 770.5 billion won, Samsung Electronics’ 590.2 billion won and Hanwha Life Insurance’s 520.2 billion won.

Companies usually choose stock repurchases for many reasons, either to raise dividends on shareholders, to prevent the further sliding of stock prices or to strengthen the owner’s management power.

Local stock analysts expect that the buyback volume will keep increasing to reach 10 trillion won at the end of the year.

“For Korean companies in the past 20 years, raising stock prices was the only way to compensate shareholders, as dividends weren’t an option,” said Oh Seung-hoon, a senior researcher at Daeshin Securities. “As the local financial market has settled in a low growth trend in the past four years, raising stock price isn’t as easy as before.

“So, the buybacks will become the new solution for the companies to bring in more shareholders and eventually raise their stock price.”

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]