Bain Capital has completed a major sell-down of its stake in Kioxia, setting a record for the largest investment return ever achieved by a fund in Japan. This exit has simultaneously reshaped the ownership structure of the Japanese NAND flash memory giant. Toshiba has reclaimed its position as the largest shareholder, while SK hynix has quietly become the de facto second-largest shareholder through convertible bonds.

According to a Nikkei report from July 26, Bain Capital held Kioxia shares through four special purpose companies (SPCs). Over the past year, it has fully exited three of these SPCs, cashing out a total of approximately 2.5 trillion yen. Meritz Securities estimates that with Bain's reduction complete, SK hynix's stake in SPC1 has also been disposed of. SK hynix is expected to recognize cumulative investment gains of around 40 trillion won in the second quarter of 2026, boosting its pre-tax profit for that quarter to nearly 100 trillion won.

Simultaneously, SK hynix holds convertible bonds in SPC2, which theoretically could be converted into approximately 14% of Kioxia's equity. However, this conversion requires approval from antitrust authorities in multiple countries, and both Kioxia and the Japanese government are cautious about a competitor obtaining voting rights, creating significant uncertainty about whether the conversion will ultimately proceed.

Bain's Record-Breaking Exit, Toshiba Returns to the Top

Bain Capital, together with investors such as Toshiba, Apple, Dell, and SK hynix, acquired Toshiba Memory (now Kioxia) in 2018. Its exit, generating approximately 2.5 trillion yen, is considered the largest single investment return by a fund in Japanese history.

Kioxia completed its listing in December 2024. At the time of the IPO, Bain Capital's four SPCs held approximately 55% of the shares, making it the largest shareholder. Toshiba ranked second with around 40%, and Japanese optics company Hoya held about 3%.

As Kioxia's share price rose steadily since last summer, both Bain and Toshiba actively reduced their stakes. Bain fully exited three SPCs, including the portion from Apple, Dell, and SK hynix (an investment of approximately 26.6 billion yen), cashing out a total of about 2.5 trillion yen. Toshiba reduced its stake from roughly 40% to 15%, and as of March last year, had benefited from share sales by approximately 800 billion yen, more than double its initial investment.

After the sell-down, Toshiba regained its position as the largest shareholder with a 15% stake.

SK Hynix's Ownership Structure: De Facto Second, Voting Rights in Limbo

Following Bain's exit from three SPCs, the remaining SPC holds about 14% of Kioxia's shares, making it the second-largest shareholder. According to Meritz Securities, SK hynix holds convertible bonds with warrants in this SPC (SPC2). If converted, it could theoretically acquire approximately 14% of Kioxia's equity.

SK hynix's initial investment in 2018 totaled approximately 395 billion yen. Of this, about 26.6 billion yen was invested in SPC1, which was established for share sales, and about 129 billion yen in SPC2, which was targeted at management rights. Simple calculations suggest that SK hynix has already realized a cash-out gain of approximately 750 billion yen (about 7 trillion won) from the sale of its SPC1 shares.

Currently, SK hynix holds no effective voting rights in Kioxia. If the CB conversion is completed and Toshiba ultimately exits, SK hynix could become the largest shareholder. However, under existing commitments, SK hynix cannot hold more than 15% of total voting rights in Kioxia until 2028.

The Path to Conversion: Regulatory and Competitive Hurdles Pose Dual Obstacles

The feasibility of the CB conversion faces substantial challenges. Kioxia and SK hynix are direct competitors in the NAND flash memory market, with SK hynix currently holding about 20% of the global NAND market. In a June report, Kioxia explicitly stated, "Due to the competitive relationship, SK hynix's exercise of voting rights may conflict with the interests of ordinary shareholders."

The Japanese government is also highly sensitive to the transfer of control over a key domestic semiconductor company to a foreign entity. There are concerns within the SK Group that "in practice, converting the bonds could be quite difficult."

Nevertheless, there are signs that the conversion process may have already begun. In a recent report, Kioxia stated, "Although SK hynix has not yet completed the bond-to-equity conversion, it may have already initiated necessary procedures in multiple countries under antitrust, foreign exchange, and foreign trade laws."

Meritz Securities expects SK hynix to recognize the final gains from the disposal of SPC1 in the second quarter of 2026. Combined with valuation gains from SPC2 and other investment-related income, non-operating income for that quarter is expected to exceed 41.6 trillion won, pushing pre-tax profit to approximately 100 trillion won.

Meritz also noted that the divorce proceedings of SK Group Chairman Chey Tae-won have significantly increased the group's need for higher dividends from SK hynix, its largest cash generator. It is expected that the related profits will be distributed upstream through SK Square, making a significant increase in future dividends highly likely.