SK Hynix has rapidly emerged as a new “big spender” in South Korea’s domestic bond market, armed with an enormous cash reserve built during the semiconductor super cycle. The company has swept up approximately ₩20 trillion (approximately $13.3 billion) worth of securities bonds and corporate bonds this year alone, making its presence felt across the entire credit market. The surge in cash equivalents, driven by record-breaking earnings, has translated into demand for short-term fund management. With its second-quarter earnings release and the listing of its American Depositary Receipts (ADR) in the U.S. scheduled for later this month, the scale of its capital deployment is expected to expand further.
According to the bond market and securities industry on the 8th, since the beginning of the year, SK Hynix has been indiscriminately purchasing high-grade credit across all sectors, from public bonds such as Korea Electric Power Corporation (KEPCO) bonds to bank bonds, financial bonds, securities bonds, and credit card company bonds. The buying entities are reported to be trust accounts at five major securities firms entrusted with fund management by SK Hynix.
The backdrop to SK Hynix’s rise as a credit market heavyweight is its semiconductor performance. In the first quarter, it posted record quarterly results on a consolidated basis, with revenue of ₩52 trillion (approximately $34.5 billion) and an operating profit of ₩37 trillion (approximately $24.5 billion). During the same period, its cash equivalents increased by ₩19.4 trillion (approximately $12.9 billion) from the end of the previous quarter to reach ₩54.3 trillion (approximately $36.0 billion). With its cash holdings ballooning so rapidly, the company needed a suitable short-term investment destination, turning its attention to the bond market.
Reflecting this performance, SK Hynix’s stock price has skyrocketed more than 1,300% from its low point in April last year. On June 22, it surpassed Samsung Electronics for the first time in 25 years to claim the top spot in market capitalization. The two companies are currently locked in a fierce battle for the number one market cap position.
SK Hynix’s bond purchases have been expanding in terms of both investment targets and maturities over time. At the start of the year, it primarily approached short-term paper with maturities of less than one year, but since June, it has been broadening its scope to include credit card company bonds, public bonds, bank bonds, and corporate bonds with maturities of around two years. Notably, after participating in the demand forecasting for Samsung Securities’ corporate bonds on the 2nd, it decided to acquire the entire ₩1.26 trillion (approximately $835.4 million) worth of commercial paper (CP) issued by Mirae Asset Securities this month. The prevailing analysis is that the ₩1.59 trillion (approximately $1.1 billion) in orders that flooded the demand forecasting for Shinhan Investment & Securities’ corporate bonds the previous day was also largely backed by SK Hynix’s demand.
Choi Sung-jong, a credit analyst at NH Investment & Securities, said, “Positive aspects are being confirmed in terms of demand, such as credit investments by semiconductor companies.” However, he added, “Whether they will invest in volumes with maturities of three years or more will likely hinge on the semiconductor cycle, and they are expected to continue buying at the two-year maturity level going forward.”
The listing and commencement of trading of SK Hynix’s ADR in the U.S., scheduled for the 10th (U.S. time on the 9th), is another factor that could trigger additional cash management demand. If the dollars raised through the ADR issuance are converted into South Korean won and flow into the domestic market, the company’s capacity for bond purchases will inevitably increase further.
However, some point out that even SK Hynix’s large-scale capital deployment is insufficient to spread warmth throughout the broader bond market. Analyst Choi Sung-jong assessed that “rather than injecting warmth into the bond market, it has merely offset the degree to which demand had contracted,” adding that “it has significantly reduced the demand burden amid a situation where corporate bond and public bond supply increased in June.” One bond broker also noted, “Since they only take volume in the primary market, issuance is going well, but secondary market trading is actually sluggish.”
Meanwhile, the yield on the three-year government bond, which is sensitive to monetary policy, rose to 3.94% per annum last month—its highest level since November 2023—and is currently fluctuating around 3.8%. This follows the retreat of expectations for a Bank of Korea base rate cut in the second half of last year, compounded by strengthened rate hike forecasts this year amid inflation concerns stemming from the U.S.-Iran conflict. The flow of funds from bonds to equities driven by the KOSPI index rally has also negatively impacted bond investment sentiment. The Bank of Korea is scheduled to hold a Monetary Policy Board meeting on the 16th to decide on the base rate, with the possibility of its first rate hike since January 2023 being raised.
Against this macroeconomic backdrop, the market consensus is that while SK Hynix’s bond purchases are functioning as a core demand base for the primary market, they have clear limitations in raising the temperature of the secondary market.