Won May Find Support in Mid-1,300s Despite Samsung, SK Hynix Shareholder Returns

"The won's first support level is in the mid-1,300s"

"They may also tap won they already hold"

Samsung Electronics Co. and SK Hynix Inc., South Korea's two biggest chipmakers, have recently announced large shareholder return plans, raising expectations that their foreign-exchange demand could drive the won higher against the dollar.

Still, the impact on the exchange rate may be limited. To match the effect from SK Hynix's earlier conversion of funds raised through its American depositary receipt, or ADR, issuance, all of the won needed for the shareholder return programs would have to be secured by converting foreign currency.

In Seoul trading on Aug. 26, the won was at 1,384.8 per dollar as of 3:30 p.m., 1.3 won stronger than at the same time a day earlier. It traded sideways in the mid-1,380s ahead of the Bank of Korea's rate decision due the next day.

Analysts estimate room for further gains in the won at about 30 to 40 won. Kwon A-min, an analyst at NH Investment & Securities, said the won's first support level would be around 1,340 to 1,350 per dollar even after reflecting expectations for dollar supply from the recent shareholder return plans.

The won's strength since last month has been driven largely by exporter selling and SK Hynix converting dollar proceeds from its ADR issuance into won. Most of that flow has now been absorbed, tempering the pace of the currency's advance.

More recently, expectations for large shareholder return programs at Samsung Electronics and SK Hynix have become a fresh market catalyst. Both share buybacks and dividends require won funding.

SK Hynix announced on Aug. 19 a 40 trillion won share buyback and cancellation plan. Samsung Electronics on Aug. 21 also approved a shareholder return program for this year worth about 90 trillion won to 110 trillion won.

The combined amount confirmed by the two companies already exceeds 150 trillion won. Samsung Electronics plans to first pay a cash dividend of about 30 trillion won in the third quarter, while the remaining methods and size of returns will be finalized in January next year.

Even so, the prevailing market view is that the won-dollar exchange rate is unlikely to fall sharply even if all of the funding for shareholder returns is converted.

NH Investment & Securities estimated that if SK Hynix converted its ADR proceeds over 30 days, the daily amount would equal about 2% of average daily won-dollar spot turnover in the second quarter, which stood at $43.7 billion.

Using the same method, and assuming Samsung Electronics and SK Hynix convert all shareholder return funds over 60 days, SK Hynix's 40 trillion won buyback would amount to about 1.1% of average daily spot turnover.

Samsung Electronics' cash dividend and employee share buyback would account for about 0.8% and 0.4%, respectively. Combined, that would come to about 2.3%, similar to the 2% share represented by the earlier SK Hynix ADR conversions.

Kwon said the scale looked similar to the ADR-related flow, at least in size. That assumes all of the funding is converted into won.

Actual conversion demand may be lower because Samsung Electronics and SK Hynix can use won they already hold as well as cash flow generated from domestic operations. NH Investment & Securities estimates that only 40% to 50% of the shareholder return funding will actually come from foreign-exchange conversions.

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com