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Soaring SK hynix affecting group's restructuring plan

By Baek Byung-yeul

SK Group Chairman Chey Tae-won
SK Group Chairman Chey Tae-won
SK hynix is apparently pulling itself out of a year-long semiconductor business slump on recovering chip demands, but concerns are growing for its grandparent company SK Group and parent company SK Telecom as they have to spend more to restructure the group's corporate governance, company officials said Tuesday.

It has been more than a year since SK Telecom CEO Park Jung-ho announced the firm's bid to become an intermediate holding company in the ICT business of the country's No. 3 conglomerate in January 2019.

The restructuring governance plan aims to help SK hynix perform its business activities, such as mergers and acquisitions, more aggressively because the grandson company of SK Group is required to mandatorily purchase 100 percent stake in a company under the monopoly regulation and fair trade act here.

In addition, the reforming plan is a way to give SK Group Chairman Chey Tae-won and his family more grip on SK hynix, the most lucrative SK affiliate with a market capitalization of around 70 trillion won ($61 billion).

Currently, SK Holdings has a 26.78 stake in SK Telecom, the largest shareholder of SK hynix, owning a 20.07 percent stake. To completely become a holding company of the chipmaker, SK Telecom needs to purchase at least a 9.93 percent stake in SK hynix at an estimated cost of 7 trillion won ($6 billion).

The price is about a 2.5 trillion won increase from the stock price of SK hynix in June 2019.

This is due to the government's soon-to-be-revised monopoly regulation and the Fair Trade Act requires a holding company to raise an ownership stake in its affiliate to 30 percent from the current 20 percent.

Stocks of SK hynix hit the 100,000 won ($86.6) mark on Monday for the first time since SK Group acquired the chipmaker in March 2012.

SK Telecom CEO Park Jung-ho
SK Telecom CEO Park Jung-ho
The world's No. 2 DRAM maker had a tough year in 2019 as its semiconductor sales are expected to dip by 38 percent year-on-year due to a supply glut of memory chips and a continued decline of memory chip prices. However amid growing demands for memory chips for both smartphones and servers in data centers, the stock prices of Samsung and SK hynix are rising.

An SK Telecom official said the mobile carrier is considering various ways to become an intermediate holding company to make SK hynix a subsidiary company of itself, but nothing has been decided yet.

SK hynix CEO Lee Seok-hee
SK hynix CEO Lee Seok-hee
"It has been almost two years since SK Telecom started considering ways to become an intermediate holding company but we have not seen progress. It is reportedly said that SK Telecom needs to pay more to acquire about a 10 percent stake in SK hynix compared to the amount we had to spend in 2019. But there was a time that the stock price of SK hynix was at around 80,000 won in 2019, which has no significant difference with the current price," he said.

Kim Jang-won, an analyst at IBK Investment and Securities, mooted the need to restructure the corporate governance of SK Group to make the business activity of SK hynix more efficient and improve undervalued enterprise value.

"One of the biggest issues of SK Group is its grandson company SK hynix, which has the biggest market capitalization of the group's affiliates," the analyst said. The corporate governance of SK Group, SK Telecom and SK hynix needs to be streamlined to re-evaluate enterprise value."

An SK hynix official reiterated the chipmaker has no comment on this issue but added it would be more flexible in terms of conducting its business activities.

"It is true that SK hynix will become more flexible in doing mergers and acquisitions. As you know when a company plans to buy another one, it doesn't try to buy the entire stake of the target company. It just tries to secure a certain amount of stocks to secure the management rights. Under the fair trade act, a grandson company needs to acquire a 100 percent stake in the company it plans to purchase. However, if we become a subsidiary of SK Telecom, we don't need to do that," the official said.

Analysts presume SK hynix's shares will likely rise on optimism that the chip-making business is recovering, adding the target price will be 120,000 won.

"The shipments of DRAM is higher than expected and the price increase of NAND flash chips is also gaining speed. A fire at a Kioxia flash foundry in Japan on Jan. 7 is expected to spur the NAND flash chip price skyward and therefore, the business performance of SK hynix will recover faster than expectated," Lee Soon-hak, an analyst at Hanwha Investment and Securities, said.

"The target price of SK hynix has been raised to 120,000 won. The memory chip business is making a turnaround and chances are high that there will be a supply shortage of memory chips in the second half of 2020 due to an increasing demand for DRAM chips in both mobile devices and servers," Lee added.


By Baek Byung-yeul

SK Group Chairman Chey Tae-won
SK Group Chairman Chey Tae-won
SK hynix is apparently pulling itself out of a year-long semiconductor business slump on recovering chip demands, but concerns are growing for its grandparent company SK Group and parent company SK Telecom as they have to spend more to restructure the group's corporate governance, company officials said Tuesday.

It has been more than a year since SK Telecom CEO Park Jung-ho announced the firm's bid to become an intermediate holding company in the ICT business of the country's No. 3 conglomerate in January 2019.

The restructuring governance plan aims to help SK hynix perform its business activities, such as mergers and acquisitions, more aggressively because the grandson company of SK Group is required to mandatorily purchase 100 percent stake in a company under the monopoly regulation and fair trade act here.

In addition, the reforming plan is a way to give SK Group Chairman Chey Tae-won and his family more grip on SK hynix, the most lucrative SK affiliate with a market capitalization of around 70 trillion won ($61 billion).

Currently, SK Holdings has a 26.78 stake in SK Telecom, the largest shareholder of SK hynix, owning a 20.07 percent stake. To completely become a holding company of the chipmaker, SK Telecom needs to purchase at least a 9.93 percent stake in SK hynix at an estimated cost of 7 trillion won ($6 billion).

The price is about a 2.5 trillion won increase from the stock price of SK hynix in June 2019.

This is due to the government's soon-to-be-revised monopoly regulation and the Fair Trade Act requires a holding company to raise an ownership stake in its affiliate to 30 percent from the current 20 percent.

Stocks of SK hynix hit the 100,000 won ($86.6) mark on Monday for the first time since SK Group acquired the chipmaker in March 2012.

SK Telecom CEO Park Jung-ho
SK Telecom CEO Park Jung-ho
The world's No. 2 DRAM maker had a tough year in 2019 as its semiconductor sales are expected to dip by 38 percent year-on-year due to a supply glut of memory chips and a continued decline of memory chip prices. However amid growing demands for memory chips for both smartphones and servers in data centers, the stock prices of Samsung and SK hynix are rising.

An SK Telecom official said the mobile carrier is considering various ways to become an intermediate holding company to make SK hynix a subsidiary company of itself, but nothing has been decided yet.

SK hynix CEO Lee Seok-hee
SK hynix CEO Lee Seok-hee
"It has been almost two years since SK Telecom started considering ways to become an intermediate holding company but we have not seen progress. It is reportedly said that SK Telecom needs to pay more to acquire about a 10 percent stake in SK hynix compared to the amount we had to spend in 2019. But there was a time that the stock price of SK hynix was at around 80,000 won in 2019, which has no significant difference with the current price," he said.

Kim Jang-won, an analyst at IBK Investment and Securities, mooted the need to restructure the corporate governance of SK Group to make the business activity of SK hynix more efficient and improve undervalued enterprise value.

"One of the biggest issues of SK Group is its grandson company SK hynix, which has the biggest market capitalization of the group's affiliates," the analyst said. The corporate governance of SK Group, SK Telecom and SK hynix needs to be streamlined to re-evaluate enterprise value."

An SK hynix official reiterated the chipmaker has no comment on this issue but added it would be more flexible in terms of conducting its business activities.

"It is true that SK hynix will become more flexible in doing mergers and acquisitions. As you know when a company plans to buy another one, it doesn't try to buy the entire stake of the target company. It just tries to secure a certain amount of stocks to secure the management rights. Under the fair trade act, a grandson company needs to acquire a 100 percent stake in the company it plans to purchase. However, if we become a subsidiary of SK Telecom, we don't need to do that," the official said.

Analysts presume SK hynix's shares will likely rise on optimism that the chip-making business is recovering, adding the target price will be 120,000 won.

"The shipments of DRAM is higher than expected and the price increase of NAND flash chips is also gaining speed. A fire at a Kioxia flash foundry in Japan on Jan. 7 is expected to spur the NAND flash chip price skyward and therefore, the business performance of SK hynix will recover faster than expectated," Lee Soon-hak, an analyst at Hanwha Investment and Securities, said.

"The target price of SK hynix has been raised to 120,000 won. The memory chip business is making a turnaround and chances are high that there will be a supply shortage of memory chips in the second half of 2020 due to an increasing demand for DRAM chips in both mobile devices and servers," Lee added.


Baek Byung-yeul baekby@koreatimes.co.kr


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