Samsung may tap $55B cash reserves for share buyback

With discouraging response towards the new Galaxy smartphone, Samsubg's share price continued to move down in the market.

Samsung's stock was trading 13 percent lower this year so far. Already Samsung's market capitalization dropped by $25 billion following lukewarm sales of S6 and Note 5 devices.

Market observers forecast the present situation may influence Samsung to buy back shares to ensure a reasonable return to the shareholders. Sitting on a huge $55-bn cash pile, the South Korea's biggest conglomerate will use cash reserves to buy back shares.

It's estimated that buyback of $1 billion would result in 20 percent rise in share price. If other investors offload their stakes in buyback exercise, then Samsung Lee family may strengthen its holding further.

Increased competition from Apple's new models and Chinese products is impacting Samsung significantly. As a result, the total sales of Samsung in 2015 are likely to be lowest since 2011.

If Samsung initiates buyback process, then it'll be its second time in the last eight years. The buyback will potentially set off the losses out of the share price drop for investors.

It's learnt that Samsung has decided to buy one percent of shareholding valuing $1.4 billion based on the market capitalization of $141. If one percent of stocks is bought back, it would result in 20 percent rally in share price.

The extended losing streak, worst in the past three decades, hammered down the Samsung's market capitalization by $58bn since its peak level.

Since the stock has turned out to be attractive at a lower price, the share buyback would help management to increase its holding and also boost market price of the shares. 

Samsung suffered a major drop in market capitalization and share price since December 1983. It just lost $44bn market value during April and August this year.  However, it recovered over three percent this month.

Since earnings are not encouraging, share buyback may take place anytime this month, as predicted by market analysts. Samsung will announce results for third quarter ending September on Wednesday.

During the last quarter, Samsung slashed down its prices for S6 and curved screen S6 Edge models within few months from their launch.

After the buyback news hit the market, share price rebounded by over three percent on Seoul market. The stock declined by over 13 percent this year.

Some analysts observe that many consumers are retaining with existing models, which are serviceable Android devices. Majority of them continue with older iPhone versions as well. Perhaps, this is impacting the Samsung sales volume. Moreover, Price is king in the smartphones market. 

Lee family, the founders of Samsung, is expected to increase their holdings in the company through shares buyback. Lee family doesn't sell a stake in the share buyback.

Samsung Vice-Chairman Lee Jae Yong and his relatives hold less than 10 percent of holdings in the company. The Lee family prefers to buy shares from small investors, predict an analyst. 

Market analysts forecast Won6.7trillion profit for the quarter. It'll be higher than previous corresponding period's Won4.1trillion, but 34 percent less than its record Won10.2trillion two years ago. The electronics major will release net income and division-wise earnings by the end of this month.