South Korea Plans Law Amendment to Ease Shareholding Limits, SK Hynix Fab Expected to Attract External Capital

TradingKey - During Asian trading hours on July 14, South Korea's ruling Democratic Party is pushing for an amendment to the "Act on Special Measures for Strengthening and Protecting the Competitiveness of National High-Tech Strategic Industries", paving the way for semiconductor companies such as SK Hynix to bring in external investors when building wafer fabs outside the metropolitan area.

The core of this legislative amendment is to relax the shareholding ratio restrictions under the current Fair Trade Act when a sub-subsidiary of a holding company establishes a sub-sub-subsidiary. Under current regulations, SK Hynix ( SKHY ), as a sub-subsidiary of SK Group's subsidiary SK Square, must hold a 100% equity stake if it establishes a wafer fab project company, which basically blocks external financing channels. The proposed amendment suggests that for cutting-edge technology enterprises certified by the Minister of Trade, Industry and Energy, when their sub-subsidiaries establish sub-sub-subsidiaries outside the metropolitan area, the required shareholding ratio will be lowered from 100% to 50%, with the remaining portion fundable by external investors.

Kim Won-i, the lawmaker who proposed the amendment, stated that the move aims to "diversify fundraising methods and encourage active investment by improving the investment system." This legislative move is seen as a supporting policy for the "Three Super Projects" announced by the South Korean government at the end of June. The project plans to construct a mega-scale semiconductor cluster in southwestern South Korea, where Samsung Electronics and SK Hynix will each build two wafer fabs, with a total investment scale of up to 4,755 trillion Korean won (approximately 3.16 trillion USD) from the two groups. The ruling party and the government have reached a consensus to push for the passage of the bill during the regular parliamentary session starting in September.

Just last week, as news of the legislative amendment spread, SK Hynix completed an American Depositary Receipts (ADR) offering of approximately 26.5 billion USD and was listed on Nasdaq. However, after the South Korean stock market opened this Monday, SK Hynix's stock price plunged by over 15%, marking its largest single-day drop since listing and dragging the KOSPI index below the 7,000-point mark.

Market analysis suggests that the trigger for the plunge was a report released by KIS, a domestic South Korean brokerage, forecasting SK Hynix's second-quarter operating profit to be 60.4 trillion Korean won, which is about 8% lower than the market consensus estimate of 65 trillion Korean won. The brokerage explained that HBM prices are mostly locked in through long-term supply agreements; therefore, Hynix, with its higher proportion of HBM, benefits relatively less when traditional DRAM prices rise. However, the firm emphasized that this is merely a valuation normalization adjustment and does not mean industry growth is slowing down, maintaining its 'overweight' rating and target price of 3.8 million Korean won.

KIS lowered its 2026 and 2027 operating profit forecasts by 9% to 11% respectively compared to its previous estimates, but emphasized that this is merely a normalization adjustment after taking long-term supply agreements into consideration, rather than a deterioration of fundamentals.

Against this backdrop, amending the law to ease shareholding restrictions and bringing in more long-term external capital for SK Hynix has become a realistic choice to ease funding pressure and ensure that the massive capacity construction proceeds as planned.

In addition to the legislative easing, South Korean President Lee Jae-myung has clearly stated that the government will utilize the 'extra tax revenue' brought by the AI semiconductor boom to feed back into the industry, with plans to establish a 'Future Response Fund' specifically to invest in three major national projects: semiconductors, AI data centers, and physical artificial intelligence. The government has promised to provide stable supplies of electricity, water, and infrastructure support for the projects, and does not even rule out building new nuclear power plants to meet the energy needs of the chip cluster.