Financial Services Commission Chairman Lee Eok-won said Wednesday that a potential Nasdaq listing of Solidigm, SK hynix's U.S. subsidiary, would be subject to the guidelines on duplicate listings.
Lee also said the boards of SK hynix and its parent company, SK Square, must fulfill five key obligations based on their fiduciary duties to shareholders. His remarks mean that both companies would be required to comply with the five obligations if Solidigm goes public on Nasdaq.
Lee made the remarks during a comprehensive audit of the Financial Services Commission, the Financial Supervisory Service and other institutions by the National Assembly's Political Affairs Committee in Yeouido, Seoul, on Wednesday.
"Solidigm is an affiliate under the vertical ownership structure of SK hynix and SK Square. As parent companies, SK hynix and SK Square must fulfill five key obligations based on their fiduciary duties to shareholders," Lee said.
When People Power Party lawmaker Park Seong-hoon asked, "By when will you finalize the scope of application of the duplicate listing guidelines to Solidigm and whether domestic securities registration (review) is mandatory?" Lee replied, "First of all, there has been no official announcement of a listing intention or any specific details."
He then explained, "We have already implemented guidelines on the principle of prohibition with exceptions regarding duplicate listings as of August 3," adding, "The duplicate listing guidelines apply to both domestic and overseas listings."
Rep. Park and Democratic Party of Korea lawmaker Lee Kang-il pointed out a regulatory gap, noting that current guidelines make it difficult to fundamentally prevent overseas listings.
Lee responded in the sense that he would scrutinize whether parent companies are thoroughly adhering to their duty of loyalty to shareholders, stating, "The five key duties of the parent company's board of directors are not minor; they are very significant obligations."
The duplicate listing guidelines implemented by financial authorities since August 3 apply to companies in a vertical control relationship as subsidiaries under the External Audit Act and affiliates under the Fair Trade Act. A vertical control relationship refers to an affiliate in which the parent company holds more than 20% of shares, or an affiliate (such as a grand-subsidiary) in which that affiliate holds more than 50% of shares.
The duty of loyalty to shareholders by a parent company's board of directors applies equally when listing a subsidiary on an overseas exchange.
If Solidigm lists on NASDAQ, both the boards of SK Hynix and SK Square would bear five key duties: △assessing the impact of the duplicate listing on the parent company's general shareholders, △formulating shareholder protection measures, △confirming shareholder communication or consent, △making a final vote for or against and notifying the subsidiary, and △disclosing related information.
However, since Solidigm is listing on an overseas exchange, domestic financial authorities or the Korea Exchange do not have the authority or basis to determine whether to allow the duplicate listing by recognizing an exception.
According to business circles and foreign media, Solidigm has selected Goldman Sachs and Morgan Stanley as lead underwriters for its initial public offering (IPO) and is considering a NASDAQ listing next year. Solidigm is a company established in the United States after SK Hynix acquired Intel's NAND flash and SSD (Solid State Drive) businesses for $9 billion, accounting for approximately 9% of SK Hynix's total revenue.
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