* Bank reluctance to take on more deposits forced firm's
hand - sources
* Growing cash pile adds to pressure for bigger shareholder
* Cash pile could aid restructuring
(Recasts, adds comments from analysts, context)
By Seunggyu Lim and Se Young Lee
SEOUL, June 16 Samsung Electronics Co Ltd
is buying more local bonds with its $60 billion cash
pile as domestic banks grow reluctant to overload on deposits
from the South Korean giant.
The investments by the world's biggest smartphone maker
underscore the challenge of managing its huge and growing
reserves, with banks increasingly wary that it could withdraw
short-term deposits upon maturity and create funding problems.
Samsung bought more than two-thirds of a 300 billion won
($294.75 million) 2-year debt issue on Friday by Kookmin Bank
, a unit of KB Financial Group Inc and the
country's largest commercial bank by assets, a person with
direct knowledge of the matter told Reuters.
Dealers also said Samsung, which accounted for almost a
third of all global smartphone shipments in the first quarter,
bought nearly 300 billion won worth of three-year treasury bonds
late last month.
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
and Korea Finance Corp.
"I think Samsung is diversifying its holdings and spreading
out its maturities," said Hanwha Securities fixed-income analyst
"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."
Samsung does not generally make large acquisitions and has
been reluctant to return wealth to shareholders through large
dividends or by buying back shares, preventing its cash pile
The cash pile could grow to 75 trillion won by the end of
the year, adding pressure on Samsung to increase dividends, said
IBK Securities analyst Lee Seung-woo.
By comparison, smartphone rival Apple Inc has been
under pressure from shareholders and has stepped up dividends
and share buybacks. It whittled down its pile of cash,
cash-equivalents and marketable securities by about $8 billion
in its most recent quarter to $150.6 billion.
Apple's dividend yield - or payout relative to share price -
is just over 2 percent. That is about double that of Samsung,
which increased dividends last year and promised to pay out even
more this year.
Samsung's dividend payout ratio - or how much of its
earnings it pays out - is 7.11 percent for the past 12 months,
according to Thomson Reuters data, whereas Apple's is 29.03
Samsung's cash pile is likely to be a factor in the ongoing
restructuring of the Samsung Group. A potential $6
billion-plus inheritance tax bill is looming for the children of
group patriarch Lee Kun-hee, who underwent emergency surgery in
May following a heart attack.
While increased dividends may not help much with the
inheritance tax - as the younger Lees own little of flagship
unit Samsung Electronics - the cash could be used to aid further
restructuring within the group.
"It's possible that Samsung Electronics will buy shares from
affiliates, which will in effect inject cash into other Samsung
Group companies," said IM Investment analyst Lee Min-hee. "The
money can then be used by the other Samsung affiliates for new
investments or further reorganisation."
Samsung Electronics, which does not give a breakdown of its
investments, said there has been no change to its stance on
ensuring stable cash management and declined to comment on
succession or group restructuring.
One official in charge of debt issuance at a private bank
said Samsung's move to broaden its asset portfolio stems in part
from banks' reluctance to take on too much of the company's cash
as deposits, which tend to be relatively short-term and could
pose liability management issues if 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.
An asset manager at another financial institution said,
"Samsung typically puts its cash in deposit products and rolls
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 appetite for bonds has helped push up prices of
shorter-dated local debt, dealers said, especially prices of
two- and three-year bonds. The bond offering from Kookmin Bank
was relatively large and highly rated.
"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)