Samsung Electronics, juggling $60 bln in cash, bulks up on bonds

[June 16, 2014]  By Seunggyu Lim and Se Young Lee

SEOUL (Reuters) - Samsung Electronics Co Ltd is emerging as a major player in its local debt market, buying more South Korean-issued bonds as it juggles a $60 billion cash pile.

Samsung's push into private bank debt and government bonds underscores the challenges faced by the electronics giant in managing its massive cash holdings, with local banks reluctant to overload on short-term deposits from Samsung.

The world's biggest smartphone maker bought more than two-thirds of a 300 billion won ($294.75 million) 2-year debt issue on Friday by Kookmin Bank [KOOKM.UL], a unit of KB Financial Group Inc, a person with direct knowledge of the matter said.

Dealers also said the company bought nearly 300 billion won worth of three-year treasury bonds late last month.

While it is not unusual for Samsung to buy local bonds, dealers said it has typically bought paper issued by highly rated government-backed financial firms like Korea Development Bank [KDB.UL] and Korea Finance Corp [KOFC.UL].

"I think Samsung is diversifying their holdings and spreading out their maturities," said Hanwha Securities fixed-income analyst Kong Dong-rak.

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

Samsung generally stays away from large acquisitions and has been reluctant to make big shareholder payouts through dividends or share buybacks, adding to its cash glut.

By comparison, rival Apple Inc, under pressure form shareholders, has been returning cash through dividends and buybacks. Apple's dividend yield is just over 2 percent, about double that of Samsung, which increased dividends last year and promised to pay even more in 2014.

Samsung's dividend payout ratio - or how much of its earnings it pays out in dividends - is 7.11 percent for the past 12 months, according to Thomson Reuters data, while Apple's is 29.03 percent.

A Samsung spokeswoman said there has been no change to its stance on ensuring stable cash management and declined to comment further.

The company does not give a breakdown of its investments.

One official in charge of debt issuance at a private Korean bank said Samsung's moves to broaden its portfolio stem in part from banks' reluctance to take on too much of the electronics giant's cash as deposits, which tend to be relatively short-term and could pose liability management issues if the cash is withdrawn at maturity.

"From the local banks' perspective, it is risky to take on too much in deposits from a single company," the official said, declining to be identified due to the sensitivity of the matter.

Added an asset manager at a South Korean financial firm, "Samsung typically put their cash in deposit products and rolled them over on maturity, but banks started offering absurdly low yields starting in the second half of last year, rates at which they were basically saying that they won't take the deposits."

Samsung's growing appetite for domestic bonds has provided support to shorter-dated local debt, dealers said, especially for two- and three-year bonds.

"There had been concerns about whether the market can digest the supply of bonds issued by local banks, which has picked up recently due to a series of debt maturities in May," another local bank official overseeing bond issuance said. "But those worries have dissipated as Samsung has taken big chunks."

($1 = 1017.8000 South Korean Won)

(Editing by Tony Munroe and Christopher Cushing)

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