Samsung Buyback Expectations Drive Narrowing of Korean Preferred Share Discounts
nashnova research
After Samsung Electronics unveiled a KRW 110 trillion ($81.8 billion) shareholder-return plan, markets are betting the company will prioritize buying back its discounted preferred shares — putting Korea's chronic preferred-stock mispricing back in the spotlight.
How wide is Samsung's preferred-share discount?
Samsung Electronics preferred shares trade at roughly a 26% discount to the common — the widest gap in over a decade.
That figure has already narrowed from 37%, driven by buyback expectations alone.
Across the broader Korean market, more than 100 listed companies have preferred shares outstanding, with an average discount of 45%. This means → preferred stocks are systematically undervalued, not just at Samsung.
Why is Samsung more likely to buy preferred shares than common?
Korean law caps the stake Samsung's financial affiliates may hold in the common stock at 10%.
In plain terms = a large common-stock buyback would passively push those affiliates above the threshold, triggering forced selling and destabilizing the founding family's control structure.
Molly Pieroni, president of Yakman Asset Management, noted: "The 10% rule could limit how much common stock they buy back, so they may buy back more preferred — which would trigger the discount to narrow."
This means → regulation tilts the buyback toward preferred shares, making discount compression almost a default outcome.
How does a preferred buyback benefit all shareholders?
Buying back and canceling preferred shares reduces the company's future dividend obligations — a net positive for every shareholder class.
Retail investor Kang Dong-oh, who launched a campaign for preferred-share revaluation, argued: "The more preferred stock the company buys back, the more all shareholders benefit."
Put simply = canceled preferred shares stop drawing dividends, and the savings effectively flow back to every remaining shareholder.
Who else is following Samsung's lead?
Hyundai Motor announced a buyback plan that includes preferred shares in August this year; its common-to-preferred premium currently exceeds 50%.
Han Sangkyoon, CIO of Quad Investment Management, said his firm sold Samsung common and added preferred earlier this year, betting the valuation gap would close.
His view: "The preferred discount is excessive; momentum for narrowing is building." This reflects institutional money already backing the trade with real capital.
What causes the discount — and can it be fixed?
Sachin Mistry, portfolio manager at London-based Palliser Capital, characterized the discount as capital misallocation — rooted in Korea's limited market openness, which constrains normal price discovery.
Yakman Asset Management holds a similar view: as Korea continues opening to international investors, the discount should gradually compress.
The Korean government is advancing corporate-governance reforms to eliminate the "Korea discount." This means → whether the preferred-share gap narrows meaningfully will be a key test of whether those reforms are working.
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