SK Hynix has become the largest shareholder of Kioxia, the third-largest global NAND flash producer, but the situation is complex. Despite investing trillions of won, concerns have been raised about the feasibility of exercising management rights and creating production and technology synergies between the two companies.
According to industry sources on August 12, SK Hynix's special purpose company (SPC) BCPE Pangea Cayman 2 (SPC2) has acquired 14.19% of Kioxia's shares through the purchase of 77.4 million shares, surpassing Toshiba's stake, which has decreased to 14.12%.
In 2018, SK Hynix invested a total of 395 billion yen (approximately 3.96 trillion won) in Kioxia through a Bain Capital consortium. This included an investment of 266 billion yen (about 2.64 trillion won) in an SPC (SPC1) to acquire Kioxia shares, along with a separate investment of 129 billion yen (around 1.28 trillion won) in convertible bonds (CB) through another entity (SPC2) to secure management rights. As of June, SK Hynix has sold all shares of SPC1 and currently holds only the CB from SPC2.
Despite the apparent change in shareholding structure, industry experts believe there will be no substantial benefits. To convert the CB into actual voting shares, SK Hynix must pass merger reviews from regulatory authorities in South Korea, Japan, and China's State Administration for Market Regulation (SAMR). Under international law, if the combined companies exceed a certain revenue threshold in China, a review by Chinese authorities is mandatory.
Amid the U.S.-China semiconductor rivalry, obtaining approval from Chinese authorities is expected to be challenging. If SK Hynix and Kioxia merge, their combined global NAND market share would exceed 30%. Given China's need to nurture its domestic NAND producer, YMTC, and lower product purchase prices, it is unlikely that Chinese authorities would allow an increase in SK Hynix's market dominance. In 2021, when SK Hynix sought to acquire Intel's NAND division, China imposed stringent conditions, including a six-year ban on price increases.
Kim Yang-pyung, a senior researcher at the Korea Institute for Industrial Economics and Trade, stated, "As long as there are revenues in China, it will be difficult to bypass the SAMR antitrust review. From China's perspective, it would be burdensome to immediately accept an increase in market dominance by a South Korean company that needs to foster its semiconductor ecosystem."
Contractual limitations also pose challenges. When investing in Kioxia, SK Hynix agreed to maintain its voting rights below 15% until 2028. Kioxia has also officially noted in its annual report that SK Hynix's share conversion rights present a 'potential conflict of interest risk.' The Japanese government is similarly cautious about allowing substantial management participation from South Korean capital due to concerns over semiconductor technology leaks.
An industry insider remarked, "With the explosive demand for eSSD for AI servers, there is an urgent need for collaboration in supplying high-value products during the NAND supercycle. However, due to strict conditions, substantial cooperation is not expected in the immediate future. For now, SK Hynix will likely focus on holding the existing CB and enhancing the value of its investment assets as Kioxia improves its performance."
* This article has been translated by AI.
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