SK Hynix Buys $10.8 Billion of Bonds, Emerging as Force in Korean Debt Market

Buys Bank, Agency and Corporate Debt

Hires Dedicated Staff for Round-the-Clock Portfolio Management

SK Hynix Inc.’s semiconductor cash pile is pouring into South Korea’s bond market. Until early this year, the company had limited its investments to one-year notes issued by public institutions and commercial banks. More recently, it has expanded into instruments including three-year corporate bonds sold by card companies and securities firms. In the securities industry, SK Hynix is increasingly viewed as a heavyweight buyer in the debt market.

According to the investment banking industry on August 4, SK Hynix bought more than half of the 500 billion won ($361 million) of corporate bonds issued by NH Investment & Securities Co. on July 28. On August 3, it purchased the entire 1.26 trillion won ($910 million) of commercial paper issued by Mirae Asset Securities Co. On July 16, it also bought all 320 billion won ($231 million) of commercial paper sold by Woori Card Co. Securities-industry officials said SK Hynix has purchased about 15 trillion won ($10.8 billion) of bonds over the past month or so.

SK Hynix is also preparing to deploy large sums into corporate bond offerings scheduled for August, a capital-markets official said. Securities firms with issuance plans are closely watching the company, the person added.

The market says SK Hynix has revised its bond-investment strategy. Until early this year, the company focused on one-year bank bonds and quasi-sovereign debt. Those securities typically carry AAA ratings and short maturities, leaving little risk of principal loss. Recently, however, it has shifted toward what the market considers medium-risk, medium-return products, including three-year bonds issued by AA-rated card companies and securities firms.

Bigger Cash Pile Drives Shift Toward Yield

Industry officials attribute the shift from safety to returns to a surge in cash and cash equivalents, which rose to about 88 trillion won ($63.6 billion) at the end of the second quarter. Even after setting aside funds that may need to be liquidated quickly for capital spending and other uses, the company still has room to invest in medium-yield bonds, they said.

Cash-Rich SK Hynix Emerges as Bond-Market Heavyweight

Three-Year Maturity Cap Supports Short- and Medium-Term Debt

SK Hynix is investing aggressively in bonds because its cash reserves have swelled. Cash and cash equivalents stood at 87.958 trillion won ($63.4 billion) at the end of the second quarter, up 61.9% from 54.33 trillion won ($39.2 billion) in the previous quarter. That was more than five times the 16.962 trillion won ($12.2 billion) recorded a year earlier.

Among South Korean non-financial companies, only Samsung Electronics Co. holds more cash and cash equivalents than SK Hynix. Samsung had 189.999 trillion won ($137.1 billion) at the end of the second quarter, up 42.621 trillion won ($30.7 billion), or 28.9%, from 147.378 trillion won ($106.3 billion) a quarter earlier. Samsung also allocates assets across bank deposits and bonds. The securities industry has welcomed the influx of semiconductor-company money because purchases of securities-firm bonds, card debt and commercial paper have helped issuers raise funds more steadily.

The company’s investment approach is also becoming more assertive. In the past, SK Hynix delegated bond investing to securities firms. Before a corporate bond sale, issuers and lead managers would provide proposed size and terms, and securities firms working with SK Hynix would conduct their own review before deciding whether to invest and how much to buy. That has changed recently. More deals are now being structured only after first confirming whether SK Hynix is willing to participate, with issuance size and terms set afterward.

SK Hynix has drawn a clear line at bonds with maturities of up to three years. It has little interest in longer-dated debt. As a semiconductor company that must regularly commit money to large facility investments, it cannot tie up funds in securities with maturities of more than five years. SK Hynix money is acting as a backstop for the short- and medium-term market, but demand is not spreading into long-dated debt, an investment-banking official said. The supply-demand gap between short- and long-term paper could widen further, the person said.

SK Hynix plans to manage its cash assets more actively. On July 28, the company’s treasury team posted a job opening for an employee to directly manage, or oversee external managers handling, government bonds, quasi-sovereign debt, corporate bonds, commercial paper and short-term electronic debt. Industry officials say that suggests SK Hynix is building a permanent bond-investment system rather than deploying surplus cash only temporarily. The company is establishing itself as an independent buyer in the bond market alongside banks, insurers and asset managers, they said.

Bae Jeong-cheol, Hankyung.com reporter bjc@hankyung.com