Solidigm's potential Nasdaq IPO: Can Korean regulators intervene?
Financial Supervisory Service Gov. Lee Chan-jin, left, attends a National Assembly audit in Yeouido, Seoul, Monday. Korea Times photo by Shim Hyun-chul
Korean regulators are facing calls to block a potential Nasdaq listing of Solidigm, SK hynix's U.S.-based NAND flash memory subsidiary, amid concerns that the move could undermine protections for shareholders of its Korean parent company, industry officials said Wednesday.
"President Lee Jae Myung should use every means at his disposal to stop the listing," said Rep. Ahn Cheol-soo of the main opposition People Power Party. "If Solidigm goes public, its rising valuation and shareholder base could dilute SK hynix shareholders' indirect stake in the company."
Solidigm is owned by AI Company, a U.S.-based entity controlled by SK hynix. Further up the ownership chain are SK Square and SK Group's holding company, SK Inc.
The dispute underscores Korea's complex corporate ownership structures, long criticized by retail investors as a factor behind the "Korea discount."
In July, Korea introduced rules to protect minority shareholders from unfavorable dual listings. Under the rules, companies seeking to list carved-out subsidiaries domestically must meet shareholder approval and protection requirements, or risk rejection by the Korea Exchange (KRX).
Solidigm's case, however, is more complicated. The company was acquired through SK hynix's purchase of Intel's NAND flash memory business rather than carved out of its existing operations. Further, the KRX has no direct authority over a U.S. listing.
A promotional image of Solidigm / Courtesy of Solidigm
Still, Korean regulators may have other ways to intervene.
Financial authorities have publicly indicated that a Solidigm initial public offering (IPO) would be subject to dual-listing rules.
"Both the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) consider it to conflict with the dual-listing rules," FSS Gov. Lee Chan-jin said during a National Assembly audit Monday. "We will carefully review the matter and make every effort to take all appropriate measures within our authority."
The KRX also said in a written response to Ahn that SK hynix would be subject to dual-listing rules and would need to "consult with or obtain approval from its shareholders."
If the company fails to meet its domestic obligations to "protect shareholders," the authorities can take supervisory or enforcement action against SK hynix. Violations can result in penalties of up to 1 billion won ($755,458) and a one-day trading suspension, among other sanctions.
Regulators can also use securities filing requirements to delay the IPO.
Under existing rules, foreign companies at least 20 percent owned by Korean residents must file a securities registration statement if domestic investors can buy their overseas-issued shares within a year.
The key question is whether the rules apply to indirect ownership through overseas subsidiaries. Lee said the FSS and the FSC are discussing the matter.
SK hynix said it is exploring options to strengthen Solidigm's competitiveness but hasn't made a final decision. The company also said, "All decisions are guided by the goal of creating long-term shareholder value."
"The potential for long-term growth in corporate value should be assessed in a balanced manner," an industry official said. "It is also important to consider the potential benefits, such as securing substantial investment funding and expanding manufacturing operations in the U.S."