Korea's National Assembly passed an amendment to the Commercial Act on 25 February 2026. It took effect on 6 March. Among other things it makes the cancellation of repurchased treasury shares mandatory rather than discretionary, with administrative fines for companies that miss the statutory deadlines.
On 16 April, KT&G Corporation's (KRX:033780) board resolved to cancel 10,866,189 common shares. They were retired on 23 April. Six weeks from statute to execution.
The filing is explicit about why the number is what it is. It says the company decided to cancel its entire holding of treasury shares in light of the revised Commercial Act and shareholder value considerations, and notes that this therefore differs from the cancellation quantity disclosed in the treasury share section of its 2025 annual report. KT&G retired more than it had told the market it intended to.
For a US reader the mechanics need explaining, because the American default is the opposite of the Korean one.
When a US company buys back stock, the shares are almost always retired or held as treasury with no realistic prospect of reissue. Earnings per share rise permanently. In Korea, companies have historically bought back shares and kept them, sometimes for years. Treasury stock sitting on the balance sheet is not merely inert — it is a tool. It can be swapped into a holding company structure to concentrate a founding family's control. It can be placed with a friendly counterparty when an activist appears. It can be reissued.
So a Korean buyback has not reliably meant what a US buyback means. It has often meant a company parking shares it might use for its own purposes later, while telling shareholders it was returning capital. That gap is one of the concrete, mechanical reasons Korean equities have traded at a persistent discount to comparable companies elsewhere.
The amendment closes it. Newly repurchased shares must generally be cancelled. The three pillars of the reform package — mandatory treasury cancellation, stronger independent director requirements, and expanded board accountability, following a 2025 amendment that extended directors' duty of loyalty from "the company" to "the company and its shareholders" — are Korea's legislative answer to that discount.
The board valued the retirement at ₩1,851,598,605,600, calculated by multiplying the cancelled shares by the ₩170,400 close on the session before the resolution. Six outside directors attended and none were absent; the audit committee is composed entirely of outside directors.
The share count fell from 114,676,645 to 103,810,456 — confirmed exactly by the August dividend filing, which computed a ₩2,000 per share payment as ₩207,620,912,000. That is a 9.48% reduction.
No cash left the company on 23 April. The shares had already been bought in prior years. What the cancellation did was convert an ambiguous asset into a permanent, irreversible increase in every continuing holder's claim. Earnings per share, dividends per share and book value per share all rose about 10.5% by arithmetic alone.
One figure to hold loosely: the company's own presentation described treasury falling from 12.0% at the end of 2025 to 0.0%. The cancellation filing shows 10,866,189 shares against 114,676,645 issued, which is 9.5%. The two do not reconcile precisely and the filings do not explain the gap. Where they differ, use the filing.
The cancellation did not stand alone, and the surrounding filings show a company that had prepared.
At its annual general meeting on 26 March — twenty days after the law took effect, three weeks before the cancellation — KT&G's retained earnings position was transformed. The line went from ₩1,723,397m at 31 December to ₩8,276,355m at 31 March, on quarterly net income of only ₩378,240m and with total equity essentially unchanged. That is a capital reserve reduction, and it created the distributable base that a large cancellation and a raised dividend both draw on.
Then on 6 August the board lifted the quarterly dividend to ₩2,000 from ₩1,400, a 43% increase, payable 7 September on the reduced share count.
Read together: unlock the reserves in March, retire a tenth of the company in April, raise the dividend 43% in August. Management has said a new medium- to long-term return policy comes in the fourth quarter, with further buybacks and cancellations in the second half depending on the share price.
Two consequences deserve attention.
The first is that KT&G now has no treasury stock. Every future cancellation requires buying shares in the open market first, which costs cash and is visible in daily trading. April's retirement was free in cash terms because it disposed of an existing holding. The next one will not be. Anyone extrapolating a 9.5% annual reduction in share count should stop.
The second is defensive. Treasury shares were, for Korean managements, a takeover and activist deterrent. KT&G has faced activist pressure before, and it now has none of that protection. That is precisely what the reform intended and it is unambiguously good for minority holders. It also means the board has permanently given up an option, which is a genuine decision rather than a costless gesture, and worth crediting as such.
The sceptical read is that mandatory cancellation improves per-share arithmetic without improving the business. KT&G's operating income was ₩1,473.2bn in FY2020 and ₩1,343.7bn in FY2025. Retiring 9.5% of the shares makes a flat earnings stream look like a growing one on a per-share basis, and a company can only do that as many times as it has shares.
There is also a question about whether the law's effect generalizes. A cash-rich tobacco company with a large treasury holding and heavy foreign ownership — Capital Research, BlackRock and First Eagle have all filed substantial shareholding reports in recent months — was always the most likely first mover. The Korean companies whose treasury stock genuinely underpins family control have the strongest incentive to comply slowly and minimally.
How many other large Korean issuers cancel their treasury holdings in full before the statutory deadlines bite, and whether any do it as completely as KT&G did. The Korea discount narrows if the reform changes behaviour at companies that did not want to change. One willing first mover proves the law works; it does not prove the law is working.
For KT&G specifically, the fourth-quarter return policy. With ₩8.3tn of distributable reserves, no treasury stock, and roughly ₩1.4tn of annual net income, the size of the next authorization is the number that says whether April was the start of something or the end of it.
kstock reads DART every morning and writes up what moved — the contract, the buyback, the number that does not add up. The daily post and a Saturday roundup, by email.