SK Group Chairman Choi Tae-won has decided to sell 944 billion won worth of SK Inc. shares to secure funds for property division, drawing attention to the settlement of the difference. Among these, a Price Return Swap (PRS) contract is attached to 400 billion won worth of shares. The structure involves transferring the shares to Korea Investment & Securities, while Choi (Chairman) continues to bear the gains and losses from share price fluctuations over three years. If SK Inc.'s share price rises above the benchmark price (587,000 won) after three years, Choi (Chairman) receives the difference; if it falls, he must compensate for it. The direction of SK's share price remains a key variable in determining the difference relative to the benchmark price.
On the 8th, SK Inc. closed regular trading at 565,000 won, down 15,000 won (2.59%) from the previous trading day. SK Inc.'s share price had risen to 883,000 won in June on expectations of earnings growth at SK Hynix, but fell to current levels after experiencing a sharp market decline in July. Nevertheless, compared to the start of the year (closing price of 259,000 won on January 2), it is more than double the price.
According to the Financial Supervisory Service's electronic disclosure system, Choi (Chairman) will sell 1,653,924 shares of SK Inc. via a block trade (off-exchange bulk sale) on the 2nd of next month. The total sale amount is 944 billion won, exactly matching the property division funds that the court ordered Choi (Chairman) to pay to his ex-wife, Art Center Nabi Director Noh So-young. SK Inc. disclosed on the 2nd that the purpose of the sale was "securing personal funds."
The core of this disclosure is that out of the 944 billion won worth of shares, 544 billion won worth will be sold to an unnamed strategic investor (SI), and the remaining 400 billion won worth will be transferred to Korea Investment & Securities.
A PRS contract is attached to the portion allocated to Korea Investment & Securities. Korea Investment & Securities can hold SK Inc. shares for three years before selling them on the market. At the time of sale, Korea Investment & Securities must settle the difference with Choi (Chairman) relative to the benchmark price (587,000 won per share). If the share price rises above the benchmark, Choi (Chairman) receives the difference; if it falls, Choi (Chairman) compensates for the difference.
This contract is evaluated as a win-win structure for Choi (Chairman), Korea Investment & Securities, and existing shareholders alike. Although Choi (Chairman) has transferred the shares for 400 billion won, he continues to retain the gains and losses from share price movements. Korea Investment & Securities receives interest (fees) on the principal of 400 billion won definitively, regardless of share price fluctuations. Existing shareholders are spared the immediate impact on the share price that would result from 400 billion won worth of shares being locked up for three years.
The financial investment industry evaluates this PRS contract as a transaction with an eye on the strong performance of affiliate SK Hynix. There is an expectation that the effect of SK Hynix's entry into the AI (artificial intelligence) semiconductor supercycle will translate into profitability, further boosting group company share prices.
The impact on the corporate governance structure has also been minimized. In the second instance of the 2024 divorce lawsuit, the property division amount was set at 1.3808 trillion won. At that time, the value of SK Inc. shares held by Choi (Chairman) was in the range of 2 trillion won, requiring the sale of more than 67% of his holdings. However, as share prices have since risen, the situation has changed so that only about 11% needs to be sold.
It appears there will be no major changes for the time being in the corporate governance structure linking "Choi (Chairman) → SK Inc. → SK Square → SK Hynix." As of the end of June, Choi (Chairman)'s stake in SK Inc. is 17.8%, SK Inc.'s stake in SK Square is 32.14%, and SK Square's stake in SK Hynix is 20.1%. With this sale, Choi (Chairman)'s stake in SK Inc. will decrease to 15.5%, but the current governance structure is highly likely to be maintained. The 3,620 shares of SK Hynix directly held by Choi (Chairman) are negligible and are evaluated as excluded from the scope of sales for property division.
Meanwhile, the property division amount (944 billion won) decided by the Seoul High Court in July is 436.8 billion won less than the amount in the second instance (1.3808 trillion won). The closing price of SK Inc. on April 16, 2024, the share valuation reference date determined by the Supreme Court, was 163,400 won, which is one-fifth of the high point reached in June.
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