SK Hynix has suspended a review of a US initial public offering (IPO) for its indirect subsidiary Solidigm. As South Korean financial authorities tighten rules on duplicate listings, effectively blocking overseas subsidiary listings, a growing number of companies are finding their routes to recoup investments and raise capital through IPOs shut off. Industry observers warn that companies may miss the right window for investing in new businesses, and that overseas mergers and acquisitions (M&A) could shrink as well.
According to industry sources on the 14th, major companies that had been pursuing domestic and overseas listings have recently withdrawn or put their plans on hold one after another. SK Hynix had been reviewing a Solidigm listing to recover its existing investment and secure new production facilities in the US, but recently halted the effort. The company cited “growing volatility in financial markets,” but analysts say the financial authorities’ stance on duplicate listings also played a part.
Lee Chan-jin, governor of South Korea’s Financial Supervisory Service, said during a National Assembly audit of the Political Affairs Committee last month that Solidigm’s listing push could constitute a duplicate listing. South Korean President Lee Jae-myung also raised the planned listing of Essex Solutions, an unlisted great-grandchild company of LS, earlier this year and ordered strict handling; the company withdrew its listing application in response to concerns from internal and external stakeholders. South Korea’s Financial Services Commission subsequently drew up a reform plan that in principle prohibits a parent company’s subsidiary from pursuing a duplicate listing, and put it into effect in August. To be granted an exception, a company must fulfill five major obligations based on the duty of loyalty to shareholders.
SK Hynix’s decision could ripple through other affiliates whose overseas listing prospects have been floated. Hyundai Motor’s Boston Dynamics and LG Electronics’ Bear Robotics are cited as prime examples.
Industry figures say the tightened duplicate-listing rules have effectively blocked large-scale fundraising through IPOs. Choi Seung-jae, a law professor at Sejong University, said there is “a negative aspect in terms of raising funds to secure new growth drivers for companies,” adding that “new listings are likely to shrink going forward.”
The concern is that as exit routes narrow, the incentive for M&A may weaken as well. Kwon Jae-yeol, a law professor at Kyung Hee University’s Graduate School of Law, noted that “SK Hynix took on risk to acquire Intel’s NAND business,” and that “to recover the investment, it must either sell the business or list it, but its options have shrunk.” He added, “Even if good assets come up overseas in the future, companies will have less reason to take on risk and pursue M&A.”
If subsidiary listings become difficult, alternatives cited include direct investment by the parent company, corporate bond issuance and borrowing from financial institutions. But critics note that high interest rates make interest burdens heavy, and that limited resources make it hard to secure diverse growth drivers. “For companies, issuing shares and listing is less burdensome and more desirable than issuing corporate bonds,” Kwon said. “If policy restricts duplicate listings, the blow to companies is bound to be large.”
Meanwhile, the South Korean government reaffirmed its commitment to normalizing the market through revitalized M&A at a capital market policy meeting the same day. President Lee Jae-myung said “the biggest mechanism for normalizing the market is hostile M&A,” and that “the market can be normalized only when M&A is revitalized so deals can happen easily and in large numbers.” On the purchase ratio under the mandatory tender offer system, he leaned toward “50% plus one share” or more, while saying he is “closer to the side of growing the pie even if it draws criticism, and to the side of revitalizing M&A so the entire market is normalized and all shareholders benefit.”
Separately from the government’s emphasis on revitalizing M&A, the route to raising funds through subsidiary listings is narrowing. Companies that built acquisition strategies on the premise of a listing now find themselves having to rework the timing of their investment exits and their new-business schedules.