Heungkuk Asset Management sent an official shareholder letter to the SK Hynix board on the 9th, criticizing the decision-making process for large-scale investment plans announced by SK Group Chairman Chey Tae-won and the government. The asset manager stated the investment announcement occurred before formal board approval, pointing to a violation of global governance standards. The criticism centers on SK Hynix's disclosure on the 29th of last month of a 1,100 trillion won mid-to-long-term investment plan—including a 400 trillion won southwestern cluster project—with the board resolution date field left blank, and the company noting that specific schedules and investment plans would be confirmed after future board approval.
Heungkuk Asset Management Criticizes Non-Board Member Investment Announcement
Heungkuk Asset Management's equity management division sent a letter titled "Letter to SK Hynix Board: Where Is the Place for General Shareholders?" According to the financial investment industry on the 9th, the letter stated: "We cannot erase deep concerns from the perspective of protecting the rights of general shareholders and corporate governance while observing the recent series of management decision-making processes."
The asset manager criticized that "the appearance of the major shareholder's major shareholder, who is not an executive of our board, announcing large-scale investment plans together with the head of the administration is far from the global standard of board-centered management." Heungkuk added: "A structure in which external entities control the direction of astronomical cash flows before sufficient deliberation and resolution within the board may be a past practice, but it can never be considered exemplary."
Chey Tae-won serves as an unregistered executive of SK Hynix and is not a board member. He is the largest shareholder of SK Inc., which is the largest shareholder of SK Square, which in turn is the largest shareholder of SK Hynix. According to SK Hynix's disclosure on the 29th of last month titled "Future Business and Management Plan," the company announced a total mid-to-long-term investment plan of 1,100 trillion won, including the southwestern cluster (400 trillion won), while leaving the "board resolution date (decision date)" field blank (-).
The company also specified in the important matters of the disclosure: "Specific schedules and investment plans will be additionally disclosed when confirmed after future board approval," acknowledging that the astronomical investment plan was announced before board deliberation. Lee Nam-woo, chairman of the Korea Corporate Governance Forum, pointed out: "The group chairman, who is not even a board member, announcing a large-scale investment plan before board approval violates OECD corporate governance principles." Lee urged Ko Seung-beom, chairman of the SK Hynix board, to immediately convene the board to deliberate on the investment plan.
Heungkuk Highlights Dividend Policy Retreat Amid Industry Boom
Heungkuk Asset Management raised concerns about inadequate shareholder return policies despite the semiconductor industry boom. The asset manager stated that Hynix's growth is the result not only of employees' dedication but also "the performance of shareholders who willingly supplied risk capital believing in the company's future." However, it claimed: "In the midst of an unprecedented industry boom, cash flow has improved dramatically, and employee compensation and massive investments are announced, but shareholders' place is nowhere to be seen."
Heungkuk specifically compared SK Hynix to competitors: "In Micron's case, it recently announced a policy to return the full amount of free cash flow (FCF) to shareholders, whereas SK Hynix's dividend this year showed a retreat in dividend payout ratio." The asset manager emphasized: "Only a predictable and exemplary shareholder return policy will provide the basis for reasonable corporate value evaluation and become a fundamental solution to stabilize volatile stock prices."
Asset Manager References 2001 Crisis and Warns Against Tunneling Risks
Heungkuk Asset Management referenced the historical fact that small shareholders saved SK Hynix (then Hynix Semiconductor) during the crisis in 2001 when the company nearly sold to Micron for just 5 trillion won. At the end of 2001, Hynix's major shareholder stake was only 9.3% and foreign ownership was 7.7%, but individual shareholders participated in large-scale paid-in capital increases through a "save our company movement," holding as much as 82.0% of shares and serving as the company's life support in the capital market.
Heungkuk stated: "Current general shareholders are those who have succeeded to the legal status and rights of the shareholders who wrote that great history," explaining that practices where general shareholders are alienated in the process of major shareholders pursuing profits should not be repeated. The asset manager warned: "If the money earned by the company becomes prey to major shareholders or some stakeholders rather than the share of general shareholders as in the past, no investor will choose long-term investment in Korean companies. The Korean market will inevitably become fixed as a short-term trading market where only short-term profits are taken and exited, not a market to hold."
Regarding long-term supply agreements (LTA) that SK Hynix is preparing, Heungkuk ordered thorough monitoring of potential unfair internal transactions (tunneling) between group affiliates. The asset manager stated: "If the counterparty of the long-term supply contract is entangled with complex transaction relationships such as data center businesses promoted by SK Group affiliates, there should not be even 1% possibility of 'tunneling' where our legitimate interests are unfairly transferred to other affiliates." It urged the board to thoroughly monitor and control with the interests of the Hynix corporation as the top priority.
SK Hynix Declines Official Response to Shareholder Letter
An SK Hynix official responded to the shareholder letter by stating: "There is no separate official position on individual shareholder letters."
FAQ
What did Heungkuk Asset Management criticize about SK Hynix's investment announcement?
Heungkuk Asset Management criticized that SK Group Chairman Chey Tae-won, who is not a board member of SK Hynix, announced a 1,100 trillion won investment plan with the government before the company's board formally approved it. The asset manager stated this violates global governance standards of board-centered management.
How much is SK Hynix's disclosed investment plan?
According to SK Hynix's disclosure on the 29th of last month, the company announced a total mid-to-long-term investment plan of 1,100 trillion won, including a 400 trillion won southwestern cluster project. The disclosure left the board resolution date field blank and noted that specific schedules and investment plans would be confirmed after future board approval.
What historical context did Heungkuk Asset Management reference in its letter?
Heungkuk referenced the 2001 crisis when SK Hynix (then Hynix Semiconductor) nearly sold to Micron for 5 trillion won. Individual shareholders participated in large-scale paid-in capital increases and held 82.0% of shares, serving as the company's life support in the capital market during that period.
