Bain Capital cashes out approximately 2.5 trillion yen to exit Kioxia, SK Hynix quietly rises to second largest shareholder

Bain Capital has completed a substantial divestment of Kioxia, setting a record for the largest investment return by a fund in Japanese history. This exit simultaneously reshapes the shareholding structure of the Japanese NAND flash giant—Toshiba has regained the position as the largest shareholder, while SK Hynix has quietly become the de facto second-largest shareholder via convertible bonds.

According to Nikkei News on July 26, Bain Capital has sold all holdings of Kioxia shares in three out of four Special Purpose Companies (SPCs) within about a year, cashing in approximately 2.5 trillion yen in total. Meritz Securities estimates that following Bain’s divestment, SK Hynix’s share in SPC1 has also been disposed of, and SK Hynix is expected to confirm a cumulative investment gain of about 40 trillion won in Q2 2026, pushing its pre-tax profit for the quarter close to 100 trillion won.

Meanwhile, through holding SPC2 convertible bonds, SK Hynix can theoretically convert them into about 14% of Kioxia’s equity. However, this conversion still requires approval from multiple countries’ antitrust authorities. Additionally, Kioxia and the Japanese government are cautious about competitors obtaining voting rights, so the eventual conversion remains quite uncertain.

In 2018, Bain Capital, together with Toshiba, Apple, Dell, and SK Hynix, acquired Toshiba Memory (now Kioxia). It completed the exit with a cash-out of approximately 2.5 trillion yen, which is considered the largest single investment return by a fund in Japanese history.

Kioxia went public in December 2024. At the time of listing, four SPCs under Bain Capital together held about 55% of the shares, making it the largest shareholder; Toshiba ranked second with about 40%; and Japanese optics company Hoya held around 3%.

As Kioxia’s share price has risen continuously since last summer, both Bain and Toshiba have successively reduced their stakes. Bain fully exited the three SPCs, including portions invested by Apple, Dell, and SK Hynix through SPC1 (approximately 26.6 billion yen invested), cashing in around 2.5 trillion yen in total. Toshiba reduced its holding from about 40% to 15%, and by last March, had realized about 800 billion yen in proceeds, more than double its initial investment.

After the reduction, Toshiba reclaimed the position of largest shareholder with a 15% stake.

After Bain fully exited three SPCs, the remaining SPC still holds about 14% of Kioxia, making it the second-largest shareholder. Meritz Securities estimates that SK Hynix holds convertible bonds with attached warrants (CB) issued by this SPC (i.e., SPC2). Once converted, in theory, SK Hynix could obtain about 14% equity in Kioxia.

SK Hynix’s initial investment in 2018 totaled about 395 billion yen, of which around 26.6 billion yen was invested through SPC1 for the purpose of share sales, and about 129 billion yen was invested via SPC2 with the aim of securing management control. A rough calculation shows that SK Hynix’s share sales through SPC1 have realized about 750 billion yen (about 7 trillion won) in proceeds.

Currently, SK Hynix does not hold any effective voting rights in Kioxia. If the CB conversion is completed and Toshiba eventually exits, SK Hynix is expected to become the largest shareholder. However, based on existing commitments, SK Hynix may not hold more than 15% of Kioxia’s total voting rights until 2028.

Whether the CB conversion can be realized faces substantial challenges. Kioxia and SK Hynix are direct competitors in the NAND flash market, and SK Hynix currently holds about 20% of the global NAND market share. Kioxia explicitly stated in a June report, “Due to competitive relations, SK Hynix exercising voting rights may create conflicts with the interests of ordinary shareholders.”

The Japanese government is also highly sensitive to transferring control of critical domestic semiconductor companies abroad. Internally at SK Group, there are concerns that “the actual process of converting the bonds may be quite difficult.”

However, there are also signs that the conversion process may have begun. In a recent report, Kioxia stated, “Although SK Hynix has not completed the conversion of the bonds, it may have already initiated necessary procedures in multiple countries under antitrust, foreign exchange, and foreign trade laws.”

Meritz Securities expects that SK Hynix will recognize the final proceeds from selling SPC1 in the second quarter of 2026, and combined with valuation gains from SPC2 and other investment-related earnings, its non-operating income for the quarter is expected to exceed 41.6 trillion won, driving pre-tax profit to about 100 trillion won.

Meritz also noted that the divorce lawsuit of SK Group chairman Chey Tae-won has significantly increased the group’s demand for higher dividends from its biggest cash cow, SK Hynix. It is expected that these proceeds will be distributed upstream via SK Square, with a high probability of substantial dividend increases in the future.