KB Securities: "Additional Bill Mandating Treasury Share Cancellation... Disposal Conditions Expected to Tighten"

On December 1, KB Securities analyzed that, with the submission of an additional bill mandating the cancellation of treasury shares, the conditions for disposing of and holding treasury shares are expected to become more stringent.

In September, KB Securities identified four potential strategies companies could adopt for utilizing treasury shares, based on five bills related to the mandatory cancellation of treasury shares submitted to the National Assembly: ▲ cancellation, ▲ disposal to a third party, ▲ employee compensation (such as stock grants and stock options), and ▲ issuance of different types of shares (such as convertible bonds).

However, KB Securities noted that if the additional bill, led by Oh Ki-hyung, a member of the Democratic Party of Korea, and submitted on November 25, is reflected, strategies such as ▲ disposal to a third party and ▲ issuance of different types of shares will become difficult to implement.

The partial amendment to the Commercial Act on the treasury share system, proposed by Assemblyman Oh, focuses on preventing management from abusing treasury shares and establishing safeguards for general shareholders in order to address the "Korea Discount."

Park Geonyoung, a researcher at KB Securities, explained, "The bill prohibits the issuance of bonds with treasury shares as exchange or redemption targets, and also prohibits using them as collateral. Therefore, it is expected to become virtually impossible to issue different types of shares with treasury shares as exchange or redemption targets."

Park added, "Treasury shares may be held or disposed of if certain conditions, such as employee compensation, are met. However, in order to hold or dispose of treasury shares, a 'Treasury Share Holding and Disposal Plan' must be prepared and approved at the general shareholders' meeting. If the shares are not cancelled within one year of acquisition without such approval, a fine of up to 50 million won may be imposed."

He further stated, "In the case of disposing of treasury shares, they must be acquired under equal conditions according to the number of shares each shareholder holds, and the procedures for issuing new shares must be applied accordingly. This confirms that the procedures for disposing of treasury shares have become stricter."

Meanwhile, regarding the cancellation of treasury shares, a review of the response status among holding companies shows that, among the 34 listed holding companies designated as large business groups by the Fair Trade Commission, Amorepacific Group is the only one to have disclosed information related to the cancellation or utilization of treasury shares since October 2025.

Researcher Park stated, "Amorepacific Group announced on November 6, 2025, that it would dispose of 2,124 treasury shares to provide performance bonuses to employees. Most holding companies appear to be taking a wait-and-see approach regarding the Commercial Act amendment on the mandatory cancellation of treasury shares."

He added, "If the contents of the bills submitted so far are reflected and the mandatory cancellation of treasury shares is legislated, the proportion of treasury shares used for cancellation and employee compensation is expected to increase. Although there will also be cases of disposal for management purposes, more detailed explanations will likely be required."

This content was produced with the assistance of AI translation services.