SK hynix [WSJ]
SK hynix [WSJ]

Analysts are split over plans to list Solidigm, SK hynix's US NAND flash subsidiary, on NASDAQ. Some view the move as a rational way to recoup acquisition costs and secure funding for future investment, while others warn it is a spinoff listing that carves out a core business unit and dilutes existing shareholders' stakes. Markets are now focused on SK hynix's shareholder return policy, which the company is expected to unveil as early as the end of this month.

The issue surfaced on Aug. 5, when reports emerged that Solidigm was pursuing a pre-IPO fundraising round worth 5 trillion to 10 trillion won ($3.54 billion to $7.07 billion) with a NASDAQ listing as its ultimate goal.

SK hynix filed a clarification disclosure with the Financial Supervisory Service's DART system the same day, saying Solidigm "is reviewing various options to strengthen its competitiveness, but nothing has been finalized." The company added it would re-disclose details once confirmed, or within one month.

Markets reacted immediately. SK hynix shares tumbled 10.37% the following day, Wednesday, on fears that a core business unit would be separately listed. The stock hit an all-time high of 2.987 million won on June 24 and has since fallen 44.93% to 1.645 million won as of Friday.

Mirae Asset Securities said the listing should be viewed primarily as a means of securing investment capital. "Some see this as a case of a subsidiary dual-listing, but it is more appropriate to approach it as a recovery of M&A investment and an expansion of follow-on funding capacity," said Kim Yeong-geon, a researcher at Mirae Asset Securities.

The basis for that view lies in SK hynix's US investment commitments. On Jan. 28, SK hynix pledged a capital contribution of up to $10 billion to SK hynix NAND Product Solutions, the parent company of Solidigm. SK Group's holding company, SK Innovation and SK Telecom also contributed a combined $1.1 billion.

Kim noted that a Solidigm listing could ease the company's heavy financial burden. "If funds are raised by selling Solidigm shares, approximately $15 billion in US investment capacity could be secured," he said, adding that "the impact of releasing some shares on SK hynix's corporate value would be limited."

He added that "SK hynix has built a remarkable track record not only in its core business but also in capital market strategy — including a partial recovery of returns from its 2018 stake investment in Kioxia worth 62 trillion won, the 2020 acquisition of Intel's NAND business for 10 trillion won, and the issuance in 2026 of American depositary receipts on NASDAQ at a record 43 trillion won."

Others, however, argue the restructuring is unfavorable to existing shareholders. Lee Yeong-gon, head of research at Toss Securities, said a lack of funding is not the reason behind the listing push.

SK hynix posted operating profit of 60.54 trillion won in the second quarter, with an operating margin of roughly 76 percent. Cash and cash equivalents at the end of the second quarter stood at approximately 88 trillion won, up 33.6 trillion won from the previous quarter, while total borrowings actually fell by 700 billion won. Last month, the company also raised approximately $26.5 billion through a NASDAQ ADR issuance.

"It is difficult to view the purpose of the Solidigm listing solely as securing investment capital for SK hynix as a whole," Lee said. He noted that if raising investment funds were the core objective, SK hynix could instead pursue a spin-off structure in which Solidigm shares are distributed to existing SK hynix shareholders as a dividend in kind. Under that approach, Lee said, minority shareholder interests would not be harmed by the Solidigm spinoff, while external investment could still flow in through a subsequent listing.

Lee said SK hynix has instead designed a structure in which a subsidiary "AI company" is established, with Solidigm placed beneath it as a sub-subsidiary. SK Group's holding company, SK Innovation and SK Telecom have each invested in the AI company — contributing a combined 1.6 trillion won — citing inter-affiliate synergies, making them shareholders. "This structure significantly reduces the possibility of a spin-off IPO for Solidigm," he said.

He added that a spinoff listing of Solidigm is an unfavorable development for existing SK hynix shareholders. Once Solidigm is separately listed, the value of a business previously consolidated within SK hynix would be assessed as a standalone listed entity, and as external investors acquire stakes through the pre-IPO and subsequent public offering, SK hynix's effective economic ownership would be diluted.

In other words, while most of the profits and cash flows generated by Solidigm were previously consolidated into SK hynix, after a separate listing that economic value would have to be shared with outside shareholders.

Lee pointed to constraints within SK Group's governance structure as the reason SK hynix chose this arrangement. SK Square is SK hynix's largest shareholder, and even when dividends are paid, only about 20 percent flows to SK Square before passing further up to SK Group's holding company — a multi-tiered structure. A merger between SK Group and SK Square would raise concerns about diluting Chairman Chey Tae-won's ownership stake, while a direct increase in SK Group's stake in SK hynix is blocked by fair trade regulations governing sub-subsidiary ownership by holding company subsidiaries. SK Square's stake in SK hynix has already fallen to the lower threshold of 20 percent. Analysts say that ultimately, separating the business unit and placing it under the AI company while bringing in affiliate capital was in effect the only remaining option.

Both sides agree that shareholder returns are the key variable for SK hynix's share price going forward. The deadline for the company's re-disclosure on Solidigm and the expected announcement of its shareholder return policy are expected to coincide — with the announcement penciled in for as early as the end of this month, or at the latest early September.

Given the backlash over the spinoff listing, analysts expect a substantial return package including a special dividend and share buyback and cancellation. However, some caution that the size of the package is not the only thing that matters. "What the market wants to see from this shareholder return policy may not just be more cash returns, but also clarity on where and by what criteria the company draws the line between capital needed for growth and capital to be returned to shareholders," Lee said. He added that the Solidigm controversy "could become the first test case of how SK hynix will allocate the enormous cash flows of the AI era, and how it will protect the value of existing shareholders in that process."

Kim said that "if a world-class shareholder return policy is added, the company's standing will be further strengthened." He highlighted three factors to watch: the official calculation period for the special shareholder return is set to run through the end of next year; the share price, having fallen to roughly half its peak, makes this an opportune time for buybacks and other returns; and the larger the return, the more it will be read as a signal of confidence in the company's future cash-generating ability.

Mirae Asset Securities estimated the total shareholder return package at around 40 trillion won. "SK hynix's 2025 free cash flow is estimated to accumulate to 180 trillion won, with net cash reaching 173 trillion won," Kim said. "Even after setting aside 100 trillion won as a safety reserve, there would be 70 trillion to 80 trillion won in available resources — and returning half of that is entirely feasible," he added.


jiyun@heraldcorp.com