The 944 billion won sky-high divorce case “settled”! Cash cuts meat to avoid split crisis, SK Hynix (SKHY.US) alert lifted

The Zhitong Finance App noticed that the “Century Divorce Case” between South Korea's SK Group Chairman Choi Tae-won and his ex-wife Roh Su-young (daughter of former South Korean President Roh Tae-woo) has ushered in the latest verdict. The court finally ruled that Choi Tae-won paid 944 billion won (approximately US$644 million/RMB 4.37 billion) in cash property installments to his ex-wife.

This sky-high price ruling quickly drew close attention from global capital markets to SK Group and its core semiconductor giant, SK Hynix (SKHY.US). According to the news, SK Hynix's domestic stock price in Korea was 1.788 million won, down 6.83%. South Korea's KOSPI market fell 6% on the same day, triggering Sidecar's suspension of the selling mechanism, and SK Hynix's intraday decline widened to 7.7% for a while.

However, after the panic, the market generally expected that the real impact of the ruling on SK Hynix's stock price would be limited, and the company's leading AI chip position was still the core variable that determined the valuation.

Steady control: cash splitting shatters “split crisis”

The Family Affairs Division 1 of the Seoul High Court handed down a ruling at 2:00 p.m. on July 24, finding that the shares of SK Co., Ltd. held by Choi Tae-won were the joint property of the husband and wife and should be divided by one-third to Roh So-young. However, the court chose the end date of the second instance debate in April 2024 (SK stock price was about 160,000 won at the time) rather than the current market price of 800,000 won or more in terms of the property valuation benchmark, so the split amount was drastically lowered from 1.38 trillion won in the second instance to 944 billion won.

Notably, the court clearly ruled out former President Roh Tae-woo's determination that “30 billion won of illegal funds” contributed to SK's growth, and at the same time required payment in the form of cash rather than shares. Soon after the verdict was handed down, Choi Tae-won stated that it would “carefully study the judgment before deciding whether to appeal”, which meant that the lawsuit, which had lasted nine years, could still enter the final stage of the Grand Court.

In terms of the property division method, the court adopted the method of price compensation, that is, Choi Tae-won continues to hold shares and uses cash to make up the difference in Roh So-young's due share. This move is due to the consideration of maintaining the company's operating rights and ensuring the stability of the corporate governance structure.

The capital market's biggest concern about the case before was the “dilution of control.”

In previous litigation debates, the two sides had a heated dispute over whether SK Group Holdings (SK Inc.) shares held by Choi Tae-won should be directly cut as joint property. If the court decides to split the stock in kind, Choi Tae-won's shareholding ratio in SK Inc. will be drastically weakened, and may even lead to the intervention of Activists (Activists), causing turmoil in SK Group's overall management rights.

However, the court finally made it clear that the installment would be paid in “cash”, which was a major benefit for SK Hynix.

Looking back on historical trends, SK Group and SK Hynix simultaneously fell 2%-3% in the intraday market on the day of the second judgment of 1.38 trillion won in May 2024, but market fears were digested within a few weeks. The amount decided this time was reduced by about 32% compared to the second trial, and the payment method was limited to cash, which meant that SK's shareholding structure would not be directly changed, and the risk of control was further reduced.

On July 24, Korea's KOSPI index plummeted by more than 4%, SK Hynix fell by more than 5%, and Samsung Electronics also fell more than 3.6%. However, market participants generally believe that the sharp decline in Korean stocks on the same day was a systemic risk release, and the correlation with divorce decisions was limited. In fact, on the previous trading day (July 23), SK Hynix ADR once rose more than 7% in the US stock market and closed up 5.79%, indicating that international investors had fully anticipated the judgment.

Staking and dividends or an alternative to selling pressure

Although direct transfer of shares has been avoided, the pressure to pay out cash of 944 billion won cannot be ignored. The market is generally concerned about how Choi Tae-won will raise this huge amount of money and whether it will cause pressure on the secondary market for related stocks.

From the logical analysis of capital operation, Choi Tae-won may take the following path:

Equity pledge financing: Choi Tae-won would prefer to pledge loans for SK Inc. shares he holds rather than directly reduce his holdings and cash out in the secondary market, thereby protecting the stock price to the greatest extent possible and maintaining control.

Promote holdings and core subsidiaries to increase dividends: In order to repay financing interest and installments, the holding company and major profit company SK Hynix is expected to increase the dividend payment rate in the future. This demand to “raise capital with dividends” may instead support long-term investors seeking stable cash flow.

The isolation effect is obvious: SK Group's control of SK Hynix is mainly achieved indirectly through the holding company SK Inc. Even if there is a very small probability of asset monetization, the main impact is concentrated at the holding company level, and the selling pressure on SK Hynix's own stock is extremely limited.

Analysts' view: From “fear of control” to “running out of favor”

Long before the original judgment was announced, the Korean capital market's interpretation of this case had changed markedly, from an early “crisis of control” to “elimination of uncertainty.”

Park Ju-gun, head of the Seoul Business Research Institute Leaders Index, stated: “The overall market value of SK Group has surged sharply due to the AI boom, and the split amount of 944 billion won is unlikely to seriously affect Choi Tae-won's control over the group.” Choi Tae-won currently has a net worth of about 5.6 billion US dollars. In the past year, due to the sharp rise in SK Hynix's stock price, his net assets have doubled. 94.4 billion won accounts for only 11.5% of his net worth, so the payment pressure is relatively manageable.

Park Se-yeon, an analyst at Hanwha Investments Securities, previously analyzed that if the amount is reduced after the retrial, “the uncertainty of SK's stock price will be lifted, and shareholder value enhancement policies such as cancellation of the company's shares are more likely”; conversely, if a high-value judgment is maintained, “SK may significantly strengthen its dividend policy to offset interest costs and ensure liquidity, and SK and SK preferred stock markets will receive attention.”

The securities industry is more concerned about Choi Tae-won's funding path. According to Korean media reports, Choi Tae-won currently holds 17.9% of SK Co., Ltd., of which about 59.2% (7.67 million shares) have been pledged as collateral, and the loan size is about 411.5 billion won. Analysts generally believe that Choi Tae-won is more likely to raise capital by adding stock pledge loans rather than directly selling shares. A securities industry source analyzed, “If Choi Tae-won increases the size of the pledge, SK will do its best to defend the stock price in order to prevent additional guarantee burdens and the risk of forced liquidation; in turn, this may become a supporting factor for stock prices.”

Marginal reduction in litigation risk

Taken together, the impact of the 944 billion won judgment on SK Hynix's stock price is characterized by “short-term emotional disturbances, mid-term neutral digestion, and long-term irrelevant fundamentals.” Today's sharp decline in Korean stocks was driven more by systemic market adjustments, and the divorce case itself has been fully priced by the market.

The core variables that determine SK Hynix's medium- to long-term valuation are still: HBM3E and next-generation HBM4 production capacity climbing progress, supply agreements with AI chip giants such as Nvidia, and quarterly earnings results to be released on July 29. As the global AI computing power competition continues to heat up, SK Hynix is a global leader in high-bandwidth memory (HBM), and its technical moat and profit prospects are far from being shaken by the controlling shareholders' personal financial arrangements.

For investors, the end of this “Divorce of the Century” is probably more like a script that has been rehearsed many times — loud thunder, little rain.