Bloomberg Intelligence report says listing could ease investment burden and boost long-term earnings; critics warn of shareholder value dilution

The Solidigm building in Rancho Cordova, California [Solidigm]
The Solidigm building in Rancho Cordova, California [Solidigm]

A sharp decline in SK hynix's share price has deepened investor anxiety, and market opinion is now divided over whether the company's US subsidiary Solidigm should pursue an initial public offering.

Some warn that a separate listing for the subsidiary would erode SK hynix's corporate value and hurt existing shareholders, while others argue that raising outside capital through an IPO would ultimately benefit SK hynix's long-term earnings.

Masahiro Wakasugi, a senior industry analyst at Bloomberg Intelligence (BI) — Bloomberg's financial markets research arm — said in a recent report that a Solidigm listing could reduce SK hynix's investment burden and contribute to improved earnings over the medium to long term.

Solidigm is a US subsidiary that SK hynix established after acquiring Intel's NAND flash business in 2020. It primarily produces enterprise solid-state drives (eSSD) used in AI data centers.

With SK hynix continuing to pour heavy investment into HBM and server DRAM, Solidigm raising outside capital would allow it to independently fund eSSD production capacity expansion and research and development, BI said.

That would free up funds SK hynix would otherwise have directed to Solidigm, allowing them to be deployed toward HBM and other projects instead.

BI also said that even if Solidigm issued new shares and allocated roughly 10 percent to outside investors, SK hynix could retain about 90 percent of the subsidiary and the earnings impact from the diluted stake would be limited.

Assuming Solidigm accounts for roughly 10 percent of SK hynix's total net profit, BI calculated that a 10 percent outside investor stake would reduce SK hynix's earnings per share by about 1 percent, while a 15 percent stake would cut it by about 1.5 percent.

Even if the outside investor stake eventually expanded to between 20 and 30 percent, the EPS decline would likely remain at around 2 to 3 percent, BI projected.

However, BI acknowledged that a multi-layered ownership structure could itself become a discount factor for corporate value, separate from any investment benefits the listing might bring. As of end-March, SK Group held a 32.14 percent stake in SK Square, which in turn held a 20.5 percent stake in SK hynix.

BI said that as of Oct. 6, SK Square was trading at a 42 percent discount to its net asset value, suggesting that the value of subsidiaries may not be fully reflected in the parent company's share price.

Bloomberg reported Oct. 8 that Solidigm had selected Goldman Sachs and Morgan Stanley as lead underwriters for its IPO and was already in talks with potential pre-IPO investors.

JPMorgan Chase, Citigroup and UBS have also joined the underwriting syndicate, and the IPO could raise between $10 billion and $15 billion, according to reports.

SK hynix has not officially confirmed any listing plan for Solidigm. In a statement released Oct. 1, the company said that funding all investment from its own resources is not necessarily the optimal choice, but added that "nothing has been decided regarding a listing, and we will take shareholder interests into account."

With no decision yet on whether Solidigm will list, market views remain split over the need for outside funding and the potential impact on existing shareholders.

BI sees outside capital as a way to ease SK hynix's investment burden and support medium- to long-term earnings improvement, while critics argue that SK hynix has sufficient internal funding capacity and should not take on the risk of shareholder value dilution that a dual listing would bring.

If SK hynix formally moves ahead with a listing, key variables in assessing the actual impact on shareholder value will include the ratio of new share issuance to secondary sales, the post-listing ownership stake, and how the proceeds are deployed.

Lee Young-gon, head of research at Toss Securities, said in August that "a separate listing of Solidigm is an unfavorable development for existing SK hynix shareholders," adding that "if Solidigm lists independently, the business value that was previously consolidated within SK hynix will be assessed as a separate listed entity."


jiyun@heraldcorp.com