What is the difference between common and preferred shares in South
Korea? Is it the same as in the U.S. where preferred shares have a
fixed dividend, are senior to the common in a liquidation, etc? Or
are preferred shares in Korea just a different class of common i.e.,
with different voting rights?
Thanks, this was a good start. I guess the other thing I am trying to
get at is whether a Korean company can effectively redeem/buy back its
preferred shares by paying the par/face amount of the preferred stock
or whether it would have to buy it back at market i.e., is it more
like a common stock instrument. If you can provide any color on this
(even if its an educated guess based on a couple of back-up documents
that you can find), then I would consider the answer fully responded
by you.
Thanks again.
Dear coyote1-ga ,
I have been unable to take research any further forward. Perhaps
another researcher may be more sucessful.
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Sorry, the link for the Stock Exchange document.
http://sm.krx.co.kr/upload/madang/1047517293869.pdf
Dear coyote1-ga,
This has not been easy to find out as the regulations concerning
shares is contained in the Korean Commercial Code - an English version
of which I have been unable to find.
There is a difference in dividend rate between the two shares. This is
from the Korean Stock Exchange?s explanation of how their indices
function (page 5 of the pdf)
"...There are two types of preferred shares listed on the KSE. One is
the equity type preferred shares whose dividend rate is simply 1%
higher that the company?s common shares. The price movement of these
preferred shares is closely related to that of the company?s common
shares."
As for other attributes it would seem that it depends on the Articles
of Association of each company set up under the Korean Commercial
Code. The Articles establish the rights of the owners of common and
preferred shares.
Global Corporate Governance Issues for Mutual Funds.
Page 72 of pdf
"A. Share Ownership
Korean companies are permitted to issue different classes of shares
with varying rights to voting, dividends, and company assets.
B. Voting Rights of Shareholders
The Code, in conjunction with a company?s articles of incorporation,
dictates shareholder voting rights. Each class of shares follows the
one-share, one-vote general rule. However, companies authorized by
their articles of incorporation to do so may issue non-voting
preferred stock not to exceed 25% of the company?s total issued and
outstanding shares. Although preferred stock generally is non-voting,
preferred stockholders are entitled to vote in a shareholders meeting
following a resolution by shareholders not to pay preferred
stockholders their specified dividend. Preferred shareholders do not
have a right to vote on other matters affecting the rights of the
preferred shareholders."
http://www.ici.org/statements/ppr/rpt_corp_gov.pdf
I have found examples from annual reports where it is set out as to
whether shares are non-cumulative, non-participating or non-voting.
One company specifically establishes that ?on liquidation, preferred
stockholders have prior claims on liquidation proceeds?. (see details
below)
This article from 2002 also hints at the prior claim,
"Legal instruments
Common stock, preferred stock and convertible bonds, classified as
such under the Korean CC, are used as legal instruments for investment
in VBs. Owing to a dearth of legal authorities overseeing the
relationship between common and preferred shareholders or convertible
bondholders, however, a clear picture has yet to emerge on the precise
classification of the various instruments that may be used.
Nonetheless, the various features of convertible preferred stock or
bonds, such as preference in dividend payment, liquidation preference,
adjustment of conversion price and redemption have been adopted."
http://www.altassets.com/casefor/countries/2002/nz2860.php
However, in the absence of a specific quote from the Korean Commercial
Code I am hesitant to post this as an answer. Does this meet your
needs? Or would you another researcher to have a try?
?SAMSUNG FIRE & MARINE INSURANCE CO., LTD.
Financial Statements
March 31, 2000
2) Preferred stock
A preferred stockholder has the same voting right as a common
stockholder and participates in dividends and liquidation proceeds
with the common stockholder. However, the preferred stockholder
receives an additional cash dividend of 1% on par value and dividends
are cumulative. On liquidation, preferred stockholders have prior
claims on liquidation proceeds.?
http://ir.samsungfire.com/data/information/Audited%20Report%20(FY99).pdf
"LG Chem
As of December 31, 2001, the Company is authorized to issue
292,000,000 shares of common stock at ?5,000 per share. The Company
has issued 64,425,064 common shares and 8,661,251 preferred shares.
Preferred stock is non-participating and has no voting rights. The
holders of preferred stock are entitled to a non-cumulative preferred
dividend at a rate of one percentage point over the common stock
dividend."
http://www.lgchem.com/ir/down/pdf/2001_Q4_notes_en.pdf
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