Bain Capital has completed a large-scale reduction of its stake in Kioxia, setting a record for the largest investment return by a fund in Japanese history. This exit has simultaneously reshaped the equity 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 on July 26, Bain Capital has cleared all holdings in three of the four special purpose companies (SPCs) holding Kioxia shares within approximately one year, cashing out a total of about 2.5 trillion yen. Meritz Securities estimates that with the completion of Bain's reduction, the portion of shares held by SK Hynix in SPC1 has also been disposed of. SK Hynix is expected to recognize cumulative investment gains of approximately 40 trillion won in the second quarter of 2026, pushing its pre-tax profit for that quarter close to 100 trillion won.

Meanwhile, SK Hynix holds convertible bonds in SPC2, which theoretically can be converted into approximately 14% of Kioxia's equity. However, this conversion awaits approval from antitrust reviews in multiple countries. Furthermore, both Kioxia and the Japanese government are cautious about competitors acquiring voting rights, creating significant uncertainty regarding whether the conversion will ultimately take place.

Record-Breaking Exit by Bain, Toshiba Returns to Top Spot

Bain Capital, together with investors including Toshiba, Apple, Dell, and SK Hynix, acquired Toshiba Memory (now Kioxia) in 2018. Its exit, involving a cash-out scale of 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 listing, four SPCs under Bain Capital collectively held approximately 55% of the shares, making it the largest shareholder; Toshiba ranked second with about 40%; and Japanese optics company Hoya held about 3%.

As Kioxia's stock price continued to rise since last summer, both Bain and Toshiba actively reduced their holdings. Bain cleared all holdings in three SPCs, including portions participated in by Apple, Dell, and SK Hynix through SPCs (with an initial investment of about 26.6 billion yen), cashing out a total of approximately 2.5 trillion yen. Toshiba reduced its shareholding ratio from about 40% to 15%, having gained approximately 800 billion yen from share sales by last March, more than double its initial investment.

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

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

After Bain cleared its holdings in three SPCs, the remaining SPC still holds approximately 14% of Kioxia's shares, ranking as the second-largest shareholder. According to Meritz Securities, SK Hynix holds warrant-linked convertible bonds (CBs) in this SPC (namely SPC2). If converted, it could theoretically obtain approximately 14% of Kioxia's equity.

SK Hynix's initial investment in 2018 totaled approximately 395 billion yen, of which about 26.6 billion yen was invested through SPC1 aimed at share sale, and about 129 billion yen was invested through SPC2 aimed at management control. A simple calculation suggests that SK Hynix has already realized cash-out gains of approximately 750 billion yen (about 7 trillion won) through the share sale via SPC1.

Currently, SK Hynix does not hold any effective voting rights in Kioxia. If the CB conversion is completed and after Toshiba's eventual exit, SK Hynix could rise to become the largest shareholder. However, under existing commitments, SK Hynix is not allowed to hold more than 15% of Kioxia's total voting rights before 2028.

Path to Conversion: Regulatory and Competitive Relations Pose Dual Obstacles

The realization 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 share. In its report this June, Kioxia explicitly stated that "due to competitive relationships, 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 key domestic semiconductor enterprises to foreign entities. Voices within the SK Group have expressed concern that "the conversion of bonds may face considerable difficulties in practice."

However, there are signs that the conversion process may have already begun. In a recent report, Kioxia stated that "although SK Hynix has not yet completed the bond-to-share conversion, it may have already started necessary procedures in multiple countries in accordance with Antitrust Law, foreign exchange laws, and foreign trade laws."

Meritz Securities predicts that SK Hynix will 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, driving pre-tax profit to approximately 100 trillion won.

Meritz also pointed out that the divorce lawsuit involving SK Group Chairman Chey Tae-won has significantly increased the group's need for higher dividends from its largest cash source, SK Hynix. It is expected that related profits will be distributed upstream through SK Square, making a substantial increase in subsequent dividends highly likely.