SK hynix emerges as Kioxia’s de facto second-largest shareholder

SK hynix has effectively become the second-largest shareholder of Japanese memory chipmaker Kioxia after private equity firm Bain Capital sold most of its stake, a shift that is drawing close attention from Japanese authorities because the two companies compete in the global NAND Flash memory market.

According to Nikkei on Sunday, Bain Capital disposed of most of its Kioxia holdings over the past year, generating about 2.5 trillion yen ($14.9 billion) in proceeds, the largest investment gain ever recorded by a private equity fund in Japan.

Following the sale, Toshiba regained its position as Kioxia’s largest shareholder with a 15 percent stake. A special purpose company (SPC) holding about 14 percent of Kioxia’s shares has become the second-largest shareholder, and SK hynix is viewed as its effective owner because it holds convertible bonds that can be exchanged for equity in the SPC.

SK hynix invested 395 billion yen in Kioxia in 2018, allocating 266 billion yen to an SPC established for financial investment and the remaining 129 billion yen to another SPC focused on governance participation.

The Korean chipmaker has not yet converted the bonds into shares, meaning it does not currently hold voting rights. Any conversion would require antitrust approvals in multiple jurisdictions before SK hynix could become a voting shareholder.

Industry observers estimate that SK hynix’s investment generated gains of roughly 750 billion yen as Bain monetized its holdings. Toshiba has also reduced its ownership from about 40 percent to 15 percent, reportedly realizing around 800 billion yen from share sales.

If Toshiba eventually exits its remaining stake and SK hynix completes the bond conversion, the Korean company could become Kioxia’s largest shareholder. However, SK hynix has pledged not to own more than 15 percent of the company’s voting rights through 2028.

The prospect has raised concerns because SK hynix and Kioxia are direct competitors in the NAND flash memory market. In a recent filing, Kioxia noted that SK hynix’s voting rights could potentially conflict with the interests of other shareholders due to the competitive relationship.

Japanese policymakers are also expected to closely scrutinize any ownership change involving one of the country’s key semiconductor companies. Kioxia further disclosed that although SK hynix has not yet converted the bonds into shares, it may already have begun the regulatory procedures required under antitrust and foreign exchange laws in multiple countries.