Key Takeaways
- • Palliser Capital, a global multi-strategy fund, presented at the Sohn San Francisco Investment Conference that Korean preferred shares represent more than $60 billion of trapped value, according to the firm.
- • Samsung Electronics' preferred shares trade at a 26% discount to its ordinary shares, while Hyundai Motor's three preferred share classes trade at a discount of approximately 48%.
- • Palliser urges Samsung and Hyundai to prioritize preferred share buybacks, set explicit discount-reduction targets in their Value-Up plans, and strengthen preferred shareholder governance protections.
- • Samsung's recently announced KRW 90-110 trillion (USD 67-82 billion) shareholder return commitment gives it capacity to redirect remaining FY'26 buyback budget toward preferred shares, per Palliser.
Summary
Palliser Capital, a global multi-strategy fund, presented its analysis of Korea's preferred share market at the annual Sohn San Francisco Investment Conference. Founder and CIO James Smith argued that while Korea's governance reforms and improving corporate fundamentals are narrowing the broader "Korea Discount," preferred shares remain an overlooked structural issue. Korean preferred shares generally carry substantially the same economic rights as ordinary shares but no voting rights, yet they trade at a substantial discount to their ordinary counterparts, far below international comparables. Palliser estimates this gap represents more than $60 billion of trapped value.
The firm used Samsung Electronics and Hyundai Motor Company as examples. Samsung's preferred shares trade at a 26% discount to its ordinary shares, while Hyundai's three preferred share classes trade at roughly a 48% discount. Palliser notes that both companies' ordinary shares are themselves undervalued, creating what it describes as a "discount-on-a-discount" opportunity. Samsung's recently announced KRW 90-110 trillion (USD 67-82 billion) shareholder return commitment and its shareholder return ratio, which Palliser says remains below that of global peers, give it room to increase distributions further.
Palliser acknowledged that Hyundai has addressed the preferred share discount and initiated steps to close it, but argued more action is needed from both companies. Its proposals include prioritizing preferred share repurchases and cancellations within shareholder return policies, including redirecting Samsung's remaining FY'26 shareholder return budget toward preferred shares and prioritizing them in Hyundai's future buybacks. It also calls for explicit preferred share discount targets in both companies' Value-Up plans, with Samsung specifically including one in its upcoming FY'27-'29 shareholder return plan, similar to the 10% target it set in FY'15. For Samsung, Palliser suggests exploring ADR issuance at a premium to fund further preferred share repurchases. Finally, it urges stronger governance protections for preferred shareholders.
Palliser, which holds both ordinary and preferred shares of Samsung and Hyundai, said it has had constructive dialogue with both companies on these proposals. Smith said that addressing the issue would strengthen capital efficiency, unlock value for all share classes, and reinforce the credibility of Korea's market reforms. The full presentation is available in an accompanying attachment.
The firm used Samsung Electronics and Hyundai Motor Company as examples. Samsung's preferred shares trade at a 26% discount to its ordinary shares, while Hyundai's three preferred share classes trade at roughly a 48% discount. Palliser notes that both companies' ordinary shares are themselves undervalued, creating what it describes as a "discount-on-a-discount" opportunity. Samsung's recently announced KRW 90-110 trillion (USD 67-82 billion) shareholder return commitment and its shareholder return ratio, which Palliser says remains below that of global peers, give it room to increase distributions further.
Palliser acknowledged that Hyundai has addressed the preferred share discount and initiated steps to close it, but argued more action is needed from both companies. Its proposals include prioritizing preferred share repurchases and cancellations within shareholder return policies, including redirecting Samsung's remaining FY'26 shareholder return budget toward preferred shares and prioritizing them in Hyundai's future buybacks. It also calls for explicit preferred share discount targets in both companies' Value-Up plans, with Samsung specifically including one in its upcoming FY'27-'29 shareholder return plan, similar to the 10% target it set in FY'15. For Samsung, Palliser suggests exploring ADR issuance at a premium to fund further preferred share repurchases. Finally, it urges stronger governance protections for preferred shareholders.
Palliser, which holds both ordinary and preferred shares of Samsung and Hyundai, said it has had constructive dialogue with both companies on these proposals. Smith said that addressing the issue would strengthen capital efficiency, unlock value for all share classes, and reinforce the credibility of Korea's market reforms. The full presentation is available in an accompanying attachment.
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