Samsung Uses US$60bn Cash Pile to Buy Bonds

South Korea’s Samsung Electronics, the world’s biggest smartphone maker, has resorted to buying more local bonds with its US$60bn cash pile as domestic banks are becoming reluctant to take on further deposits from the group according to reports.

Reuters cited a reliable source, who told the agency that Samsung bought more than two-thirds of a 300 billion won (KRW) – equivalent to US$294.75m – two-year debt issue on 13 June by Kookmin Bank, a unit of KB Financial Group and South Korea’s largest commercial bank by assets.

Dealers also told the news agency that Samsung, which accounted for almost a third of all global smartphone shipments in the first quarter, bought nearly KRW300bn won worth of three-year treasury bonds late last month. The investments highlight the group’s challenge of managing its massive and growing reserves, with banks increasingly wary that Samsung could withdraw short-term deposits upon maturity and create funding problems.

According to Reuters, while it is not unusual for Samsung to buy bonds, dealers said it has typically bought debt issued by highly rated government-backed financial firms such as Korea Development Bank (KDB) and Korea Finance Corp (KOFC).

Samsung does not generally make major acquisitions and has been reluctant to return wealth to shareholders through large dividend payments or by buying back shares, thus preventing its cash pile from depleting.

“I think Samsung is diversifying its holdings and spreading out its maturities,” fixed-income analyst Kong Dong-rak of Hanwha Securities told Reuters.

“Samsung has to manage the cash in some way and it can’t always get the right yields and duration from the banks, so it looks like it went to the bond market to find new avenues.”

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