Regulators Challenge Solidigm's Nasdaq IPO, Fueling SK hynix Shareholder Backlash

South Korea's financial watchdogs have raised concerns over SK hynix's plan to list its subsidiary, Solidigm, on the Nasdaq. This marks the first time a senior regulator has publicly acknowledged possible duplicate-listing issues with a foreign subsidiary seeking a direct listing on a foreign exchange. The Financial Supervisory Service (FSS) governor, Lee Chan-jin, stated that both the Financial Services Commission and the FSS view Solidigm's proposed listing as potentially conflicting with existing duplicate-listing rules.

Regulators are now reviewing whether Solidigm must file a securities registration statement in South Korea and intend to inform SK hynix of their concerns through appropriate channels. Solidigm is set to be underwritten by Goldman Sachs and Morgan Stanley, with a projected valuation of up to $150 billion. The U.S. listing is expected to raise $10 billion to $15 billion.

The main issue at hand is corporate governance; critics argue that a Solidigm listing would create an unprecedented five-tier structure of duplicate listings, potentially leading to a so-called double-counting problem. Political opposition has also intensified, with opposition party representative Ahn Cheol-soo urging the National Pension Service, SK hynix's second-largest shareholder, to publicly declare its intention to vote against the Solidigm listing.

The Korea Corporate Governance Forum has also described the situation as unprecedented and urged the board to halt the plan. While some argue that the listing could provide funding for Solidigm's NAND flash memory production facility in New York state, others maintain that it would be a practical way to secure capital for further investments and mitigate geopolitical risks.

Financial regulators cannot directly block a foreign exchange listing, but they are expected to closely scrutinize whether SK hynix's board fulfills its obligations under duplicate-listing guidelines. The upcoming third-quarter earnings announcement, scheduled for October 28, may provide further clarity on the company's plans and potential shareholder-return measures.