Samsung Electronics Chairman Lee Jae-yong (right) and Han Jin-man, head of the foundry business at the Device Solutions (DS) division, attend the Allen & Company Sun Valley Conference held in Sun Valley, Idaho, U.S., on the 7th (local time). AFP Yonhap News
Samsung Electronics has effectively ruled out listing American depositary receipts (ADRs) on the US stock market. Global investors and some shareholders had argued that an ADR listing was needed to improve access to the US market and have the company’s value reassessed. But Samsung Electronics has judged that the benefits are not significant at present, according to sources. Analysts in the financial investment industry say Samsung Electronics is concerned about the costs of operating under the US disclosure system and the risk of class-action lawsuits under US securities law.
“Global IBs Made Proposals, but…”
Samsung Decides Not to Pursue ADR Listing
Burden of Equity Dilution Through New Share Issuance
Samsung Electronics headquarters in Seocho-gu, Seoul. News1
According to industry sources on the 15th, Samsung Electronics recently conducted a preliminary review of the possibility of an ADR listing on the US stock market with global investment banks (IBs).
“There were global IBs proposing an ADR listing to Samsung Electronics (005930.KS), and there were discussions at the level of Samsung Electronics reviewing the IBs’ proposals,” an industry official said. “However, I understand that Samsung Electronics has decided not to proceed with issuing ADRs.”
The biggest reason Samsung Electronics is not actively pursuing a US listing is its ample internal investment resources. As of the end of the first quarter this year, Samsung Electronics’ cash and cash equivalents, including cash and short-term financial instruments, amounted to approximately 147 trillion won. In the second quarter, it posted preliminary earnings of 89.4 trillion won, the largest among private companies worldwide. Compared with SK hynix, whose cash equivalents stood at approximately 54 trillion won as of the first quarter this year, Samsung Electronics’ financial capacity is on a different level, according to assessments.
Samsung Electronics can secure its own investment resources while conducting large-scale facility investments and research and development (R&D). For this reason, analysts say the need to raise new funds through a US stock market listing is relatively low.
In particular, issuing new shares for an ADR listing would require accepting dilution of existing shareholders’ stakes. Given that Samsung Electronics has sufficient internal investment resources, analysts say there is little incentive to list ADRs on the US market at the cost of accepting equity dilution through new share issuance.
Once Under the US SEC Disclosure System,
Even Management Decisions Face US Class Actions
Legal Burdens May Chill Management Judgment
News that startup Revel raised Series B funding is displayed on a Nasdaq billboard. Photo=Captured from Revel’s official LinkedIn
If Samsung Electronics lists ADRs on the US stock market, it would be incorporated into the US legal system. This would create the burden of additional disclosure obligations and legal liabilities.
As a “Foreign Private Issuer” entering the US Securities and Exchange Commission’s (SEC) regular disclosure system, it would have to file an annual report (Form 20-F). In addition, important information disclosed under domestic laws or Korea Exchange regulations would have to be provided promptly to US investors as well through “Form 6-K.”
Items subject to Form 6-K filing include not only earnings and financial condition but also changes in control and management, acquisitions and disposals of major assets, significant legal disputes, securities issuance and changes in debt, transactions with major shareholders and executives, and significant cybersecurity incidents.
Kiwoom Securities’ advertising campaign unveiled on Nasdaq Tower’s electronic billboard in New York on the 2nd (local time) to herald the leap of South Korea’s stock market. Kiwoom Securities
Beyond simply translating domestic disclosures into English, a process is also needed to verify that the content, expression, and materiality judgments match between Korean disclosures and SEC filings.
The biggest burden is US-style securities litigation risk. For example, if Samsung Electronics announced future earnings projections but the actual results differed significantly, or if investors judge that it failed to sufficiently disclose important business risk factors, they could file lawsuits claiming they “invested based on incorrect information.” US investors can file securities class-action lawsuits if they judge that a company provided material false or omitted information in SEC filings or investor announcements and caused losses.
Moreover, US-listed companies bear internal control obligations under the Sarbanes-Oxley Act. Under Section 302 of the act, the chief executive officer (CEO) and chief financial officer (CFO) must personally certify that no material facts in the annual report are falsely stated or omitted, and that the financial information appropriately reflects the company’s financial condition. As a result, some point out that management decisions could be chilled by concerns over litigation risk.
Unlike SK hynix, Which Is B2B Only
Samsung’s Galaxy, TVs, and Appliances Popular in the US
Concerns Over Consumer Lawsuits From Product Defects
Samsung Electronics’ Galaxy S26 series. Yonhap News
Some analysts say that Samsung Electronics faces greater legal risk that could arise in the US consumer market than SK hynix, which has a semiconductor-focused business structure.
Samsung Electronics sells various consumer products in the US market, including smartphones, TVs, and home appliances. According to Counterpoint Research, Samsung Electronics recorded a 26% share of the US smartphone market in the first quarter this year, ranking second after Apple (58%). In the TV market, it also maintains a leading position with a share in the 20% range based on shipments.
Of course, consumer class-action lawsuits related to product defects or personal data protection can occur regardless of an ADR listing.
However, if such disputes could have a material impact on the company’s financial condition or business outlook after an ADR listing, yet were not sufficiently disclosed or the risks were described in a minimized manner, the problem could grow. This is because investors who purchased ADRs based on disclosure information could file class-action lawsuits claiming they suffered losses due to insufficient information.
Samsung Electronics, SK hynix. Yonhap News
Governance Must Also Be Disclosed Under US Standards
Samsung, With Semiconductor, Mobile, and Appliance Businesses
Faces Burden From Governance Structure Different From SK hynix
Information related to Samsung Electronics’ affiliates and governance structure must also be disclosed in line with the SEC system. The SEC requires disclosure of major shareholders with 5% or more stakes and their control relationships with the company, agreements that could lead to changes in control, and significant transactions and lending relationships with related parties such as affiliates, management, and major shareholders.
SK hynix (000660.KS) has a relatively simple structure in which its largest shareholder, SK Square, directly holds a 20.5% stake. In addition, because it focuses on the semiconductor business, its burden of disclosure and governance explanation is relatively lighter.
Samsung Electronics, however, operates multiple businesses including semiconductors, mobile, and home appliances, and maintains transactional relationships with affiliates such as Samsung C&T and Samsung Life Insurance. In the event of a US ADR listing, it would have to explain whether the details and terms of transactions with major affiliates are fair to the company and shareholders. In particular, legal disputes could arise in the process of explaining inter-group transactions and decision-making procedures in line with US standards.
“When listing ADRs on the US stock market, costs for responding to SEC disclosures, internal controls, and securities litigation arise on an ongoing basis,” an industry official said. “For Samsung Electronics, it is unclear whether the benefits of a US listing are clear enough to justify bearing such costs and risks.”