Samsung Electronics and SK hynix’s Unprecedented Shareholder Returns… Even the Exchange Rate Is Shaken [Weekend Money]

According to securities analysts, the large-scale shareholder returns expected from Samsung Electronics and SK hynix are shaking up even the foreign exchange market. As these companies prepare the funds needed for shareholder returns, it is anticipated that they will exchange a significant amount of dollars into won, which is seen as a key factor driving the recent decline in the dollar-won exchange rate.

“SK hynix ADR Effect: Expectations for 300 Trillion Won in Shareholder Returns Lowered the Exchange Rate”

Recently, Choi Yechan, a researcher at Sangsangin Investment & Securities, stated, “The dollar-won exchange rate entering the 1,300 won range is not simply a byproduct of a weaker dollar. The real driver is the anticipation of large-scale shareholder returns by Samsung Electronics and SK hynix.”

Choi first pointed out the impact that SK hynix’s issuance of American Depositary Receipts (ADRs) had on the exchange rate. ADRs are certificates that allow shares of domestic companies to be traded on U.S. stock markets. Sangsangin Investment & Securities estimated that SK hynix converted approximately $26.5 billion (40 trillion won)—raised through ADR issuance—into won at a pace of around $1 billion per day. Rather than exchanging the entire amount at once, the company opted for a gradual approach to mitigate market impact. In each instance when $1 billion was released into the market, the dollar-won exchange rate was found to fall by about 4.9 won.

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As the foreign exchange market witnessed the effect of SK hynix’s ADR fund conversion, attention turned to the upcoming shareholder returns of both companies. Based on their existing policy of returning about 50% of their three-year free cash flow (FCF) to shareholders, there is speculation that Samsung Electronics and SK hynix could distribute up to 100–200 trillion won and 100 trillion won, respectively—a combined total of up to 300 trillion won ($220 billion)—in shareholder returns.

Choi explained, “From the corporate perspective, securing up to 300 trillion won in won inevitably necessitates large-scale currency exchange, a calculation now reflected in the foreign exchange market. These expectations have already been priced in; export companies are selling dollars preemptively, and speculative dollar sales are adding to the pressure, all driving the currency lower.”

“Over 45% of 300 Trillion Won Must Be Exchanged for Dollars for Continued Decline”

However, a 300 trillion won shareholder return will not act solely as a driver for won strength. This is because there is an ongoing demand for “reverse remittance,” as dividends paid to foreign shareholders and the proceeds from treasury share sales are exchanged back into dollars and sent overseas.

Sangsangin Investment & Securities estimated that after excluding treasury shares slated for cancellation, the actual cash required for shareholder returns would amount to around 296.8 trillion won. Of this, dividends would account for 126.8 trillion won. Taking into account the proportion of foreign shareholders, taxes, and the share of dividends repatriated, it is estimated that about 48.5 trillion won will be converted into dollars and remitted overseas.

A similar pattern is expected for treasury share purchases. If foreign investors sell half of the 170 trillion won in new treasury shares to be acquired by the two companies, they would receive approximately 85 trillion won. If these funds are converted into dollars and transferred abroad, it would further boost demand for dollars. The total demand for converting dividends and treasury share sale payments into dollars is thus estimated at 133.5 trillion won.

Ultimately, for large-scale shareholder returns to exert downward pressure on the exchange rate, the amount of dollars exchanged into won by the two companies must exceed foreign investors’ reverse remittance demand of 133.5 trillion won. This figure accounts for about 45% of the total cash resources set aside for shareholder returns. In other words, if more than 45% of the required won is sourced by exchanging held dollars, supply will outstrip demand and the exchange rate could drop further.

“Short-Term Drop in Exchange Rate Is Certain”

The most critical aspect of shareholder returns’ impact on the foreign exchange market is not the total amount, but the order in which funds move. Initially, companies sell dollars to secure won, and investors—expecting a drop in the exchange rate—also begin selling dollars. Subsequently, the movement of foreign investors converting dividends and treasury share proceeds back into dollars and remitting them occurs later. Thus, the force lowering the exchange rate takes effect first, while the subsequent upward pressure occurs with a time lag.

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Sangsangin Investment & Securities projects, under a base scenario where the two companies exchange 50–60% of cash-equivalent shareholder return funds over a 6–12 month period, that over the next 12 months the dollar-won rate will remain in the 1,325–1,400 won range. Around the time the shareholder return policy is announced, expectations of large-scale dollar sales will likely push the exchange rate even lower. Once foreign investors begin repatriating dividends and treasury share sales proceeds, dollar demand will increase and the exchange rate could rise again. In the short term, the exchange rate is expected to fall, with some rebound in the medium term.

Choi concluded, “Because the factors lowering the exchange rate materialize first, a short-term decline is virtually certain. However, as reverse remittance of dividends and treasury share proceeds accumulate, the pressure for a rebound will intensify.” He added, “The specific impact will need to be further verified once the size and method of shareholder returns are announced.”

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