13th Apr 2016 09:41
LONDON (Alliance News) - Weiss Korea Opportunity Fund Ltd, which is managed by Boston-based Weiss Asset Management LP and invests in preferred shares issued by South Korean companies, Wednesday said the KRW11.3 trillion share buyback unveiled by tech giant Samsung Electronics in October is resulting in investment opportunities.
Samsung, which plans to cancel all shares purchased in the programme, is buying back preference and ordinary shares in several tranches and completed the first in January.
According to Weiss Asset Management, Samsung repurchased 5.43% of outstanding preference shares versus just 1.51% of the outstanding ordinary shares, and has since guided that it will buy back 2.45% of its preference shares and 1.45% of its ordinary shares in the second tranche.
Since Samsung's buyback was first announced, Weiss said, the discount at which Samsung preference shares trade to ordinary shares has narrowed to about 15%. Samsung has indicated that it would suspend the repurchase of preference shares only if the discount hits 10%, Weiss said.
As well as serving to improve Samsung's share price in relation to earnings, the buyback send a "more important" message to the market, Weiss said: "that the largest Korean company is actively pursuing policies to increase shareholder value."
"While Samsung is repurchasing preference shares at a 15% discount to its ordinary shares, most preference shares are trading at much larger discounts. It will be harder for the managers of those other companies to argue that they should not be repurchasing their heavily discounted preference shares when Samsung is repurchasing its preference shares at much smaller discounts. In the long run, this precedent is a strong positive for all discounted preference shares," Weiss said.
Norman Crighton, the chairman of Weiss Korea, said: "Following Samsung's announcement regarding its buy-back programme [in October], the Samsung preferred discount has narrowed somewhat but remains volatile. This volatility continues to provide investment opportunities for the company."
The London-listed closed-ended investment company's net asset value - the difference between its assets and liabilities - increased by 11.70% in 2015, it said in a statement, ahead of the MSCI Korea 25/50 Capped reference index's negative 1.1% return in sterling. It was a year in which Korean companies were hit by China's economic slowdown, the investment manager said in its report.
"If China goes into an economic decline this will further hurt the Korean economy. China is the main market for Korean exports, accounting for about a quarter of total exports. Some sectors of the Korean economy, such as steel producers, are particularly vulnerable to overcapacity in China," Weiss Asset Management said.
Though without any direct exposure to the steel industry, Weiss Asset Management said the effect of China's slowdown on the steel industry may have had broader implications for market sentiment and triggered concern about the potential for overcapacity in the Chinese auto industry. That may have hurt its investments in Hyundai Motor Co.
"The future may be volatile and 2016 has started off as a challenging year for global equity markets, but I derive comfort from the favorable relationship between price and value in Korean preference shares. Over a long time horizon, I believe Korean preferred shares offer compelling value," Norman Crighton said.
The company paid a 1.8580 pence per share dividend in June, and plans to return all dividends received from investment to shareholders.
"Typically for South Korean companies, shareholders of record near the end of the calendar year are entitled to a single annual dividend. However, the dividends are generally not announced or paid to shareholders until several months into the following calendar year. The board has decided to schedule payment of the company's annual dividend distributions in the early summer. This timing helps ensure that dividends are paid out as soon as is reasonably practical after the company receives them," Crighton said.
Shares in Weiss Korea Opportunity Fund were untraded on Wednesday morning. The stock closed at 131.00p on Tuesday.
By Samuel Agini; [email protected]; @samuelagini
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