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(Seoul=Yonhap Infomax) Kyu Sun Lee — "We are disposing of treasury shares to secure investment funds." This was the explanation given by Samyang Foods Co., a leading South Korean food manufacturer, when it announced on the 19th that it had sold all of its treasury shares for 99.4 billion won ($76.5 million). However, a closer look at the disclosures released on the same day and the identity of the buyers casts doubt on this rationale. The company sold nearly 100 billion won worth of treasury shares—ostensibly to cover an additional investment need of just 5.8 billion won ($4.5 million)—and did so to entities widely regarded as short-term traders.
According to the financial investment industry on the 26th, Samyang Foods simultaneously issued disclosures regarding the disposal of treasury shares and a revision to its investment plan for its Chinese production subsidiary. The key point in the revised disclosure was an increase in the number of production lines in China from six to eight, a move seen as positive by investors amid ongoing global shortages of its flagship Buldak Ramen.
Market observers suggest that Samyang Foods attempted to offset the negative impact of selling all its treasury shares—a move that could undermine shareholder value—by pairing the announcement with positive news about capacity expansion.
The issue lies in the numbers. According to the revised disclosure, the expected investment amount increased by only 5.8 billion won, from approximately 201.4 billion won to 207.2 billion won. Governance experts question the logic of selling 100 billion won in treasury shares for such a minor funding need, especially given Samyang Foods' strong cash flow.
• Regulatory Scrutiny on EB Issuance Spurs Block Deal Route?
The urgency of the sale is also under scrutiny, as the company was not in immediate need of funds. Typically, companies prefer to issue exchangeable bonds (EB) backed by treasury shares, as EBs are not immediately converted to stock and are usually set at a premium to the current share price, minimizing downward pressure on the stock.
However, Samyang Foods opted for a block deal, selling shares at a 3.5% discount to the market price. Industry sources attribute this to recent regulatory tightening by the Financial Supervisory Service (FSS), which now requires companies with ample cash reserves to justify why they are issuing EBs instead of using existing cash. Several cash-rich firms, such as Kwang Dong Pharmaceutical and Taekwang Industrial, have recently withdrawn EB issuances after failing to meet the stricter requirements.
Given Samyang Foods' robust cash flow, analysts believe it would have been difficult for the company to pass the FSS's rigorous review. As a result, the company appears to have chosen the block deal route—despite the risk of share price declines—to circumvent regulatory hurdles and secure immediate funding.
• Analysis of Block Deal Buyers: No Long-Term Investors
The nature of the buyers has also drawn criticism, as most are event-driven funds seeking short-term arbitrage rather than long-term value. Jump Trading, for instance, is a proprietary trading firm specializing in high-frequency and algorithmic trading, focusing on rapid price movements rather than long-term corporate value. Viridian Asset Management is also known for event-driven strategies, such as block deals and rights offerings.
A CEO of a global quantitative trading firm familiar with the ecosystem commented, "Jump Trading's participation in the block deal appears purely for short-term arbitrage. Given the discount, they are likely to sell the shares immediately to realize profits."
Indeed, Samyang Foods' share price fell for three consecutive trading days (21st–25th) following the block deal.
The Korea Corporate Governance Forum (Chairman Nam Woo Lee) issued a statement strongly criticizing the management's decision. Chairman Lee noted, "None of the three foreign buyers are reputable long-term funds; two are known for short-term trading strategies. Why would a 10 trillion won K-food flagship company sell treasury shares to short-term trading funds instead of attracting respected pension funds or long-term investors as shareholders?"
• Suspicions of Preemptive Action to Avoid Legal Changes
Some in the market speculate that the sale was a preemptive move to avoid pending legislation that would require companies to cancel treasury shares within a year of acquisition. Notably, five days after the sale, the opposition party proposed an amendment to the Commercial Act mandating such cancellations.
Chairman Lee added, "It appears Samyang Foods rushed the disposal of treasury shares through the board before the Commercial Act amendment was proposed, treating them as assets rather than capital." He further criticized, "According to the proposed amendment, treasury shares are to be classified as capital, not assets. Samyang Foods' case sets a bad precedent by disguising the disposal of treasury shares as a means of securing growth capital."
Questions were also raised about whether the board sufficiently considered alternative financing options. "Given Samyang Foods' strong cash flow and financial health, there was no need to raise cash by selling treasury shares. Did the eight board members, including CEO Jeong-Soo Kim, seriously consider alternatives such as using surplus cash, existing reserves, or issuing corporate bonds instead of selling 99.4 billion won in treasury shares?" Lee asked.
Finally, Lee emphasized that the sale violated the company's prior commitments to shareholders. "When Samyang Foods acquired treasury shares four years ago, the stated purpose was to enhance shareholder value and provide performance-based compensation for executives and employees. CEO Jeong-Soo Kim should clarify whether these objectives have been met. Korean companies must remember that disclosures are promises to shareholders and the market, and every effort should be made to honor them," he said.
kslee2@yna.co.kr
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