[Edaily Reporter PARK MIN ] As financial authorities have ruled that Solidigm— SK hynix(000660)’s U.S.-based semiconductor subsidiary (sub-subsidiary)—is pursuing a dual listing in connection with its Nasdaq IPO, market attention is focused on what concrete sanctions might be imposed. Currently, the prevailing view is that, in accordance with the “Stock Exchange Listing Regulations” revised last August, authorities will increase pressure by strictly requiring SK hynix, the parent company, to fulfill the five key obligations that specify the duty of loyalty to shareholders.

Lee Chan-jin, Chairman of the Financial Supervisory Service (FSS), stated during a parliamentary audit by the National Assembly’s Political Affairs Committee yesterday (the 19th) regarding Solidym’s listing plans, “Both the Financial Services Commission and the FSS have determined that this constitutes a duplicate listing.” Chairman Lee’s assessment is understood to be based on the “Stock Market Listing Regulations, Enforcement Rules, and Guidelines,” which were amended to restrict dual listings in principle while allowing them only in exceptional cases, and took effect on August 3.

According to these regulations, the scope of the dual listing restrictions is defined as subsidiaries under the External Audit Act (those subject to consolidated financial statements) and affiliated companies under a vertical control relationship. A vertical control relationship includes affiliates in which the parent company owns 20% or more of the shares, as well as affiliates (such as grandchild or great-grandchild companies) in which those affiliates, in turn, own more than 50% of the shares. This encompasses not only parent-subsidiary relationships formed through spin-offs but also those formed through acquisitions and new incorporations, and it applies equally when a subsidiary is listed on an overseas securities market.

Based on this, the authorities view the overseas listing (on NASDAQ) of Solidigm—in which SK hynix holds a 100% stake through an intermediate holding company—as a “dual listing” as well. Solidigm is a U.S. corporation established by SK hynix in 2021 following its acquisition of Intel’s NAND flash and solid-state drive (SSD) business units. It is a “grandchild company” in which SK hynix holds a 100% stake through a U.S. intermediate holding company (AI Company) established earlier this year.

The problem is that, with SK hynix’s stock price having plummeted by more than half from its first-half high—a situation that has pushed shareholder dissatisfaction to a fever pitch—the controversy over dual listings has intensified as the stock price fell further due to the added issue of Solidigm’s overseas listing. As shareholder backlash grew, the matter was ultimately brought up during a National Assembly audit the previous day and has even escalated into a regulatory issue for financial authorities.

In fact, shareholders are concerned about “earnings dilution”—the reduction in SK hynix’s ownership stake—which would decrease the net income and dividend funds allocated to existing shareholders if new shares are issued and new shareholders are brought in during Solidym’s Nasdaq listing process. Furthermore, they are wary that, similar to when LGCHEM,LTD spun off its battery division as “LG Energy Solution” and listed it separately, the separation and listing of a core growth business could eliminate investors’ incentive to buy the parent company’s stock, potentially leading to a severe “holding company discount.”

An industry official stated, “Solidyme is effectively SK hynix’s core business unit; if it raises external funds to issue new shares and goes public, the dilution of equity value for the parent company’s shareholders will be inevitable in the short term.”

Under current law, there is no explicit legal basis for the government to arbitrarily prohibit a company’s legitimate overseas direct investment or overseas fundraising activities. Lee Sang-bok, a professor at Sogang University Law School, said, “Considering the provisions on the extraterritorial application of the Capital Markets Act and the intent of the stock exchange listing regulations, this would be interpreted as a dual listing,” but added, “However, there is no clear legal basis to directly sanction an ‘unlisted U.S. corporation’ that is pursuing an overseas listing or to compel it to file a securities registration statement.”

In fact, the listing regulations and guidelines for the Stock Market do not completely prohibit dual listings; rather, they follow the principle of “prohibition in principle, with exceptions allowed.” Accordingly, if SK hynix proceeds with Solidigm’s NASDAQ listing, regulatory scrutiny will be directed squarely at SK hynix—the domestically listed parent company—rather than its U.S. subsidiary. Analysts predict that pressure regarding the listing decision will intensify, with authorities demanding that the SK hynix board fulfill its obligations, such as devising measures to protect shareholders.

According to the proposed regulations, if a listed company pursues a dual listing, the parent company’s board of directors must fulfill five key obligations that embody the duty of loyalty to shareholders. These five obligations are: △ assessing the impact on shareholders resulting from the subsidiary’s listing; △ establishing shareholder protection measures, such as selling existing shares, distributing dividends, or canceling treasury stock; △ communicating with general shareholders and confirming their consent; △ passing a final board resolution for or against the listing and notifying the subsidiary; and △ disclosing the relevant details on the same day. In this process, prior review and approval by an “independent special committee”—composed of at least two-thirds outside directors and external experts—are mandatory, and procedures to seek consent from general shareholders are, in principle, recommended.

If a subsidiary proceeds with an overseas listing without fulfilling its shareholder protection obligations, the stock exchange may impose a penalty of up to 1 billion won for breach of the listing agreement. For SK hynix, a major company with a market capitalization of over 100 trillion won, the base penalty is 800 million won; if intentional misconduct is found, the penalty is increased by 25%.

Particularly devastating is the “suspension of stock trading” penalty. Under the regulations, trading of the parent company’s shares is immediately suspended for one day starting the day after the imposition of the penalty is announced. If trading of SK hynix—the second-largest company by market capitalization in Korea and a global leader in the semiconductor industry—is suspended due to a violation of dual-listing regulations, a massive blow to the group’s external credibility and stock price would be inevitable.

Industry observers view the FSS’s reference to the Financial Services Commission’s authoritative interpretation regarding “whether Solidym’s securities registration statement is subject to domestic review” as part of a move to mobilize every available means of pressure. An industry official explained, “Requiring the submission of a securities registration statement in Korea for the local listing of an unlisted overseas corporation is so unusual that it is difficult to find a precedent,” adding, “Ultimately, the regulatory authorities have sent a strong warning signal: ‘Do not neglect the erosion of value for general shareholders.’”

Professor Lee Sang-bok remarked, “Given the lack of specific legal grounds for financial authorities to directly sanction unlisted overseas corporations, the fact that the authorities have even played the ‘authoritative interpretation’ card in the National Assembly constitutes a form of strong ‘administrative guidance’ and an ultimatum,” “Since there is no practical benefit in clashing with the government, it is highly likely that SK hynix will postpone its schedule or voluntarily delay the process, taking into account public opinion and the authorities’ stance,” he assessed.