SK Hynix Gains Path to Chip Investment via Joint Ventures

Regulations requiring great-grandchild subsidiaries of holding companies to maintain 100% ownership when establishing domestic affiliates will be eased. The move is expected to provide relief for trillion-won-scale investments by companies in national strategic high-tech industries such as SK hynix (000660.KS) and LG Energy Solution (373220.KS). The government is also pursuing measures to apply exceptions to the principle of separating industrial and financial capital, allowing general holding companies to own financial leasing companies for equipment rental such as semiconductor factories.

According to relevant government ministries on Wednesday, the Ministry of Economy and Finance, Ministry of Trade, Industry and Energy, Financial Services Commission, and Fair Trade Commission plan to announce measures for "changes to holding company and industrial-financial separation regulations" as early as this week at an economic ministers' meeting. There is also speculation that President Lee Jae-myung may personally announce the related measures.

"In broad terms, a consensus has been formed among government ministries, and only the announcing entity and timing remain," a senior government official said.

The core of this regulatory easing is reducing the equity holding requirement for great-grandchild subsidiaries of holding companies to below 50%. Under the current Fair Trade Act, if a grandchild subsidiary of a holding company wants to establish a domestic subsidiary (great-grandchild company), it must hold 100% of that company's shares. While this was designed to prevent reckless octopus-like expansion by large conglomerates, it has been criticized as a major regulatory obstacle blocking joint ventures (JVs) and mergers and acquisitions (M&A) in the artificial intelligence (AI) and semiconductor industries, which require investments in the tens of trillions of won.

If the equity requirement is eased to around 50%, SK hynix will be able to establish special purpose companies (SPCs) to attract external funding or set up joint ventures with other companies. LG Energy Solution is also expected to benefit. Financial leasing by holding companies will also be partially permitted. Affiliates of holding companies engaged in high-tech industries are expected to be able to reduce initial accounting costs by leasing equipment and facilities.

"There is a need to continue expanding policies easing the separation of industrial and financial capital, including allowing industrial capital to participate as general partners (GPs)," said Yang Joon-mo, a professor of economics at Yonsei University.