Governance Forum Welcomes SK Hynix Treasury Share Cancellation...Recommends ADR Issuance

The Korea Corporate Governance Forum welcomed SK Hynix's decision to cancel its treasury shares, while also urging the company to quickly repurchase its own shares and use this as a basis for listing American Depositary Receipts (ADRs) in the United States. The forum also argued that the current board, which is skewed toward professors and Kim & Chang law firm, should be strengthened with capital market and governance experts to enhance its independence.

In a statement released on the 29th, the forum said, "We welcome SK Hynix's announcement yesterday to cancel treasury shares worth 12.2 trillion won (2.1% of total shares issued)," adding these remarks. The Governance Forum is a non-profit corporation with over 120 domestic and international members, including financial professionals, legal experts, and academics, aiming to advance the capital market through improved corporate governance.

The forum stated, "If the board had been independent and had a clear understanding of capital allocation, it would have made this decision last year," and made four recommendations to the board and management.

First, it said, "Quickly repurchase treasury shares and use this as a basis for ADR listing," and added, "Acquire 10-15% of the total shares issued, cancel a portion, and list most of them in the United States. The ADRs listed in the US should be worth 20 to 30 billion dollars to ensure liquidity and allow for substantial inclusion in exchange-traded funds (ETFs)."

The forum also noted, "ADR listing does not immediately lead to a higher stock valuation," but emphasized, "Stock revaluation will only occur if governance is improved. The board must be independent of group influence and enhance transparency, ensuring that all decisions are made in accordance with the amended Commercial Act to protect the interests of all shareholders and treat all shareholders fairly."

Second, the forum called for clear capital allocation principles. "The fourth-quarter dividend of 1,875 won announced on the same day is very disappointing. The total annual dividend of 3,000 won results in a dividend yield of 0.35%. The payout ratio is only 5%," it said. "The board's core responsibility is capital allocation. In December 2024, the forum gave the company's value enhancement plan a grade of C, mainly due to the lack of a clear capital allocation policy." The forum argued that, in addition to large-scale investments, shareholder returns should be expanded through dividends, treasury share repurchases, and cancellations.

The forum also recommended strengthening the independence of the board, which is currently concentrated among professors and major law firms. "Three out of five members are professors (two in engineering, one in accounting), and the remaining two are former or current members of Kim & Chang. Except for one, none have any business experience," the forum pointed out. "Like US big tech companies or Taiwan's TSMC, reduce the number of internal directors to one (CEO Kwak Nojeong), and fill the rest of the board with independent directors."

The forum also mentioned that shareholders are concerned about the US artificial intelligence (AI) subsidiary. "Investors do not have high trust in SK Group and Chairman Chey Tae-won. The company entered the battery market late, failed to manage tens of trillions of won in debt, and SK On is expected to record an operating loss of 931.9 billion won in 2025," the forum cited several examples.

It continued, "The so-called 'financial story' promoted by the Chey family, characterized by aggressive mergers and acquisitions (M&A) and business expansion, has failed. Only debt remains, the brothers have formally stepped back from management, and have handed over management to a cousin. This is not responsible management," the forum criticized. It also expressed concern that the establishment of a US AI subsidiary could sharply increase future investment capacity and make shareholder oversight difficult, recommending that at least large-scale projects be subject to review by the SK Hynix board.

This content was produced with the assistance of AI translation services.