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SK Inc.’s Vice Chairman and CEO Jang Dong-hyun speaks at the company’s annual shareholder meeting on March 29, 2022 (Courtesy of SK Group) US hedge fund Dalton Investments LLC urged SK Inc., the holding company of South Korea’s SK Group, to focus more on share buyback and cancellation than dividends to improve shareholder value further.Dalton welcomed SK’s announcement of its recent shareholder return policy. The company unveiled a plan for an annual share buyback equivalent to 1% or more of its market capitalization by 2025, in addition to the existing measure to utilize more than 30% of dividend income from subsidiaries to fund dividend payments to shareholders during its annual shareholder meeting on March 29.But Dalton, which manages $3.2 billion as of Dec. 31, 2021, said share buybacks and cancellations are expected to boost SK’s value much more than dividends. The Los Angeles-based hedge fund has been investing in SK through funds and client accounts that it manages.“HEAVILY-DISCOUNTED VALUATION”“We would like to add that SK should focus much more on share buybacks than on dividends, at the current, heavily-discounted valuation,” Dalton said in a letter to SK’s board of directors and management dated April 6. “Moreover, SK should strongly consider canceling repurchased shares.”A share buyback reduces the number of outstanding stocks, raising shareholder value. Berkshire Hathaway’s founder Warren Buffett praises the management of its invested companies when they buy back shares at low valuations, Dalton said.A South Korean financial company, in which the hedge fund has shares, has shifted from dividends to share buybacks and cancellation and its share price has appreciated “greatly,” Dalton said.“The market is usually very hesitant to assign value when there is an overhang risk,” it said, emphasizing share buyback and cancelation are better for shareholder value.By Sul-Gi Leesurugi@hankyung.comJongwoo Cheon edited this article.
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