Abstract:
SK Hynix has been embroiled in controversy over its dual listing plan for its US subsidiary Solidigm. Lee Can-jin, president of the Korea Financial Supervisory Service, made a rare statement saying that the listing plan "may fall into the scope of dual listing supervision" and halted the relevant process. The market is currently focusing on potential regulatory penalties and their actual effectiveness. Experts say that the legal binding force of relevant penalties from financial regulators is weak, but this verbal intervention itself may force companies to withdraw their listing plans.
According to news from the securities industry on the 22nd, SK Hynix is evaluating Solidigm’s listing on Nasdaq and is considering Morgan Stanley and Goldman Sachs as lead underwriters.
As SK Hynix's stock price plummeted, the listing of Solidigm, a US great-grandson subsidiary, triggered market concerns: existing shareholders' rights were diluted and company profits were diverted. Solidigm is a U.S. entity established by SK Hynix after acquiring Intel's NAND flash memory and SSD business for approximately US$9 billion in 2021. If Solidigm issues new shares to introduce external investors, SK Hynix's shareholding ratio will decrease, and the profits generated by Solidigm in the future will also need to be shared with external shareholders.
As the controversy continues to simmer, financial regulatory authorities have rarely publicly expressed concerns about Solidigm's listing plan. Lee Can-jin, president of the Financial Supervisory Service, said at the State Affairs Supervision Meeting of the National Assembly Administrative Affairs Committee on the 19th: "The Financial Commission and the Financial Supervisory Service have judged that this matter involves dual listing regulations. If necessary, we will convey regulatory concerns to SK Hynix." On the same day, the Korea Exchange responded to an inquiry from the office of National Power Party member Ahn Cheol-soo and explained: According to the listing rules, Solidigm is classified as a subsidiary, and SK hynix must fulfill its shareholder protection obligations.
If SK hynix fails to fulfill its obligations related to shareholder protection, it will be fined up to 1 billion won in liquidated damages under the listing agreement, and SK hynix’s shares will be suspended for one day the next day. In addition, if a shareholder claims that irregularities have caused investment losses, it may also lead to litigation related to the director's violation of his duty of loyalty to shareholders.
Since Solidigm plans to be listed on an overseas exchange, it is difficult for South Korean financial regulators to directly halt the listing itself. But analysts said that public questioning by regulators has already increased the pressure on SK Hynix. Lee Sang-bok, a professor at Sogang University School of Law, said: "The regulatory agency has no legal basis to directly punish Solidigm for promoting overseas listing, or to force the submission of securities declarations. But just stating that it will issue an authoritative explanation essentially constitutes administrative guidance and increases the burden on SK Hynix."
The controversy over Solidigm’s dual listing has spread from the regulatory level to the political arena, further increasing corporate pressure. Ahn Cheol-soo, a member of the National Power Party, said on the 21st: "The day SK Hynix Solidigm is listed, it will be the end of the Korean stock market," and urged the National Pension Service to publicly express its opposition. Kim Han-kyu, a member of the Democratic Party of Korea, also posted on Facebook: "Strongly requesting Hynix management to reconsider this 'dual listing' plan."
Shareholders and industry experts called on SK hynix’s board of directors to take action as soon as possible. The Korea Corporate Governance Forum commented: "Immediately convene the board of directors to review the listing issue and fully disclose the relevant details." The market's concerns about equity dilution and profit outflow continue to heat up, and calls for the board of directors to evaluate the necessity of listing, assess the impact on shareholder value and make a clear stance are getting louder.
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