Key points
- InvestChosun reported August 10 that a Nasdaq listing for Solidigm would leave four listed companies stacked in one line of control, running SK Inc. to SK Square to SK Hynix to Solidigm. It says Korea has never had a four-level structure like it.
- Korea's duplicate listing rule took effect August 3 and applies the same way when a subsidiary lists on a foreign exchange.
- The rule exempts a subsidiary whose assets, revenue and operating profit are all under 10% of the parent's. Solidigm is under that line on all three.
- The exemption is cancelled if the subsidiary's expected value is over 10% of the parent. Solidigm's round is being run near 50 trillion won ($35.3B USD).
- SK Hynix has committed up to $10 billion to the US AI Company now sitting above Solidigm, with SK Inc., SK Innovation and SK Telecom contributing too.
- Solidigm made 1.2672 trillion won ($894M USD) in operating profit in the first quarter, after years of losses under SK Hynix.
On August 10, InvestChosun (인베스트조선) reported that SK Group is preparing to launch an AI company in the United States and to raise money for Solidigm ahead of a listing, and that the duplicate listing rule which took effect this month is what stands in the way. I wrote about the Solidigm listing on Friday and said Korea's new rule probably wouldn't reach it. That still looks right, though for a different reason than I gave, and the reason is a number that could still go the other way.
Four companies in one line
The structure is the new part. SK Inc. (SK㈜) sits at the top of the group. Under it is SK Square (SK스퀘어), the holding company in the middle. Under that is SK Hynix, and under SK Hynix is Solidigm. The first three are already listed in Seoul. If Solidigm lists on the Nasdaq, that makes four listed companies in a single line of control, which InvestChosun says Korea has never had before.
An official in the investment industry told the outlet the trouble is already visible one level up. "SK Inc. already cannot fully enjoy the growth of its grandchild company SK Hynix because of the intermediate holding company SK Square, and it is dealing with conflict of interest problems like tunneling," the official said. A fourth level adds one more set of outside shareholders with a claim on the same business underneath.
The restructuring that got SK here happened quietly. The company SK Hynix bought from Intel in 2021 was renamed and turned into the group's AI investment arm, now called AI Company. Then in the first quarter a brand new company, Solidigm Inc., was set up underneath it to hold the NAND business. SK Hynix has resolved to put up to $10 billion into AI Company, and SK Inc., SK Innovation and SK Telecom are all contributing as well. SK Telecom's own share of that is 738.4 billion won ($521M USD).
The 10% line
Korea's Financial Services Commission and the Korea Exchange put the duplicate listing rule into force on August 3, and it reaches further than many people assumed. It covers subsidiaries formed by acquisition and by new incorporation, not only ones carved out of a Korean company. It reaches down to grandchild companies where the control is real. And the five duties it puts on a parent company's board apply in the same way when the subsidiary lists on a foreign exchange.
It also has a size exemption. A subsidiary whose assets, revenue and operating profit are all under 10% of the parent's is exempt in principle from the shareholder consent requirement. Solidigm is under that line on all three counts, which is why several Korean outlets have written that it sits outside the rule.
The guideline doesn't stop there. "Even if all three items are under 10%, if the expected corporate value judged through the shareholder impact assessment or the offering price band exceeds 10% of the parent and it is recognized as an important subsidiary, the shareholder consent exemption does not apply," it reads. Solidigm's pre-IPO round is being run at a value near 50 trillion won ($35.3B USD), raising 5 trillion won ($3.5B USD) to 10 trillion won ($7.1B USD). Whether that figure clears 10% of SK Hynix is a call the Korea Exchange has to make, and the listing turns on it.
Solidigm isn't a small business anymore, either. Korea Financial News (한국금융신문) reported it lost about 8 trillion won ($5.6B USD) in its years under SK Hynix and then turned around, making 1.2672 trillion won ($894M USD) in operating profit in the first quarter of this year, helped by AI data centers buying enterprise storage faster than it can be made.
What it costs SK Hynix shareholders
The objection from SK Hynix's own shareholders is arithmetic. SK Hynix owns all of Solidigm today. If Solidigm sells new shares to outside investors, SK Hynix's share of it falls, and part of what Solidigm earns starts belonging to somebody else on the consolidated accounts. Donghaeng Ilbo (동행일보) put it plainly, that for an SK Hynix shareholder this lands the same way a share sale by SK Hynix itself would, because either way the earnings attached to one share get smaller.
Korean investors have a reference point for this. LG Energy Solution's listing in 2022 came out of a split of LG Chem, and LG Chem holders watched the part they had bought the stock for get priced separately without them. Solidigm is a different case, since SK Hynix bought it rather than carving it out. NAND flash also isn't what most people own SK Hynix for. They own it for HBM and DRAM. The difference is real, and it still didn't stop the comparison from being made. SK Hynix fell 10.37% on August 6, the day the listing report landed, though that drop had other causes we covered at the time.
SK Hynix's own position hasn't moved since Friday. "Our overseas subsidiary Solidigm is reviewing various measures to strengthen competitiveness, but nothing is confirmed at this time," the company said in its August 5 filing, and it owes another disclosure by September 4. An official in the business community told InvestChosun the outcome isn't settled. "There is a view that the game is effectively over because of the rule that took effect this month, but there are companies besides SK Group that need to list overseas subsidiaries locally, so we have to watch how strongly the regulation gets applied," the official said.
Meanwhile, SK Hynix closed Monday at 1,420,000 won ($1,001 USD), down 0.14%, on a day the Kosdaq rose 6.97%.
Sources
- 인베스트조선, SK, 美 AI컴퍼니 출범·솔리다임 프리IPO 앞두고 중복상장 규제 고민, on the four-level structure, the $10 billion commitment and both industry quotes
- 인베스트조선, 솔리다임 IPO 채비로 윤곽 드러나는 SK그룹의 美 AI컴퍼니 구상, on the renaming of the original Solidigm and the new company created under it
- 법률신문, 중복상장 제도개선안 발표, 규정 개정 및 가이드라인 주요 내용과 시사점, on the rule's scope and the wording of the 10% exemption
- 시사저널e, 솔리다임 IPO說에 SK하이닉스 급락, LG엔솔 중복상장 포비아?, on Solidigm falling under the low-proportion exemption and the LG Energy Solution comparison
- 한국금융신문, SK하이닉스, 실적 반등 성공한 솔리다임 나스닥 상장 검토, on Solidigm's losses and its return to profit
- 동행일보, 솔리다임 50조 상장설, 하이닉스 주주엔 유상증자다, on what the listing does to SK Hynix's earnings per share
- Our earlier coverage: Friday's piece on the Solidigm listing and the new rule, SK Hynix's shareholder return plans
Figures are converted at about 1,418 won to the US dollar. Quotes originally in Korean are translated. This is general market commentary and not investment advice.
