Capital Raising Blocked by Regulations... Even SK Hynix Pushes for U.S. Listing Out of Urgency

Accelerating Competition in Advanced Industries as AI Investments Surge
Regulations in Korea: Banking-Commerce Separation, Treasury Shares, and Dual Listing

As SK Hynix begins considering a listing of American Depositary Receipts (ADR) in the United States, the environment for domestic companies to raise capital has once again come under scrutiny. With investment in advanced industries such as artificial intelligence (AI) and semiconductors growing, concerns have been raised that companies are facing a narrower range of capital-raising options in Korea due to the separation of banking and commerce, mandatory treasury share cancellation, and restrictions on dual listings.

According to industry and financial investment sources on December 11, SK Hynix stated in a response to a market inquiry the previous day, "We are reviewing various measures to enhance corporate value, but nothing has been finalized yet." The company added, "We will make another announcement when specific details are confirmed or within one month." While there has been speculation that approximately 17.4 million treasury shares could be utilized, the company emphasized that it is still in the review stage. Some analysts suggest that this move is aimed at addressing both the issue of domestic undervaluation and expanding the overseas investor base.

This market inquiry was prompted by reports that SK Hynix is considering listing its treasury shares as American Depositary Receipts on the U.S. stock market. Depositary Receipts (DRs) are alternative securities issued to allow a company's shares to be traded in overseas markets. When a company deposits its original shares with a domestic custodian, a foreign depositary institution, such as a local bank, issues DRs backed by these shares, making them tradable in overseas markets. When issued in the United States, they are called ADRs. Industry insiders believe that if ADRs are traded in the U.S. market, SK Hynix could be revalued on par with competitors like Micron.

In the industrial sector, SK Hynix's consideration of an ADR listing is seen not as a single company's choice, but as a symbolic event exposing the structural limitations of Korea's capital markets. While domestic regulations restrict affiliate listings and limit the use of treasury shares, the U.S. market is actively working to attract advanced industry companies.

Companies also express the expectation that they could be valued more highly in the United States than in Korea. Above all, investor interest in the AI and semiconductor industries is high in the U.S., making it likely that issuing ADRs could enhance corporate value. As competition in advanced industries intensifies, there is growing demand for regulatory reforms to expand the capital market options available to companies.

Yonhap News Agency

SK Hynix has conveyed to the government the need for regulatory improvements, citing difficulties in securing the capital and infrastructure required for large-scale investments as a single company. At a presidential office briefing, SK Hynix CEO Kwak Nohjung stated, "It is difficult to secure large-scale funding, so regulatory easing is needed," pointing out the limitations of a structure where mega-investments are concentrated within a single company. SK Hynix plans to invest approximately 600 trillion won in phases to expand fab capacity and introduce advanced equipment at the Yongin Semiconductor Cluster, and has also announced a 42 trillion won investment in Cheongju over the next four years.

This trend reflects the reality that companies' capital flexibility has been severely restricted by holding company regulations and the separation of banking and commerce. Relevant ministries are expected to announce measures as early as this week to adjust some of the holding company regulations and the separation of banking and commerce principle. The explanation is that, given the increasing scale of strategic industry investment, it is difficult to supply the necessary capital for large-scale business expansion under the current regulatory environment.

The government is reviewing a plan to ease the current rule requiring a holding company's grandchild company to own 100% of its domestic great-grandchild company, lowering it to 'more than 50%.' While the 100% rule was intended to curb excessive control by founding families, in advanced industry investments, the cost of establishing new subsidiaries has become excessive, hindering business expansion. SK Hynix and LG Energy Solution are cited as representative examples affected by this rule.

There is also discussion about allowing general holding companies to own financial leasing companies. Under the current system, which applies the separation of banking and commerce principle, general holding companies cannot operate financial or insurance businesses, but if financial leasing is permitted, they could reduce initial costs by leasing equipment and facilities. Utilizing special purpose companies (SPCs) to attract investors is also expected to become possible, broadening the methods for raising capital in advanced industries.

Meanwhile, criticism has persisted that domestic regulations are failing to keep pace with the speed of investment. This is because the scale of investment by global technology companies is reaching levels that Korean companies find difficult to match. TrendForce projects that major AI companies such as Google, Amazon, Meta, and Microsoft will have capital expenditures totaling 520 billion dollars (about 764 trillion won) next year. The construction cost of a single semiconductor fab is also expected to exceed 100 trillion won.

Nevertheless, there is ongoing debate in Korea about making treasury share cancellation mandatory, and criticism that strategic capital utilization is constrained by regulations such as the separation of banking and commerce and restrictions on dual listings. In a survey by the Korea Chamber of Commerce and Industry, 62.5% of companies opposed mandatory treasury share cancellation, while 79.8% suggested fairer disposal of newly acquired treasury shares as an alternative.

An executive at a major conglomerate said, "It is difficult to cope with the era of advanced industries, where tens of trillions of won must be invested repeatedly, under the current system." Another executive commented, "The larger we grow, the more regulations increase."