Figure 1. SK hynix received the Best ESG Bond award at the 2023 IFR Asia Awards dinner

The Inner Workings of SK hynix’s Triple-Tranche Bond

SK hynix’s triple-tranche bond was noted for being creative and offering a variety of investment options while adhering to the needs of both the issuer and investors. The bond was comprised of three segments: a USD 750 million 6.25% 3-year conventional bond, a USD 1 billion 6.375% 5-year sustainability-linked bond (SLB)¹, and a USD 750 million 10-year 6.5% green bond². The balance of the SLB and green bond in the same transaction drew particular attention for offering something unique to the market.

The SLB, which was a first for a global semiconductor memory manufacturer, has a core environmental-related KPI. By 2026, it aims for at least a 57% reduction in Scope 1 and Scope 2³ greenhouse gas (GHG) emissions intensity⁴ compared to a 2020 baseline.

¹Sustainability-linked bond (SLB): A fixed-income bond tied to predefined ESG objectives that are measured through predefined KPIs. The interest rates of the bond can vary depending on whether the issuer achieves its objectives.
²Green bond: A debt security issued by an organization to finance or refinance projects that are positive for the environment and/or the climate.
³Scope 1 and 2: Scope 1 refers to direct emissions generated in the production stage, while Scope 2 describes indirect energy-related emissions generated in the process of making electricity or steam used in the workplace.
⁴Greenhouse gas (GHG) emissions intensity: The amount of GHG released per production capacity for SK hynix’s semiconductor memory.

Meanwhile, the net proceeds from the green bond have been allocated towards the financing or refinancing of environmental projects outlined in SK hynix’s Green Financing Framework. These include sustainable water and wastewater management, energy efficiency, pollution prevention and control, and terrestrial and aquatic biodiversity conservation.

These bonds play a key role in helping SK hynix reach its sustainability goals, such as reaching net zero emissions by 2050. Its environmental commitments are further highlighted by its status as a founding member of the global Semiconductor Climate Consortium, the first consultative body which targets GHG reductions throughout the semiconductor value chain.

Green Bond Funds a More Sustainable Semiconductor Ecosystem

Figure 2. Allocation by category of the green bond’s USD 750 million proceeds

In addition to being the most popular portion of the triple tranche deal, the green bond has realized significant advancements in SK hynix’s products as well as its environmental efforts. A total of 92.8%, or USD 696 million, of the bond’s total proceeds (USD 750 million) was allocated by the third quarter of 2023, with all of the funds expected to be allocated by the end of 2023 (awaiting confirmation of fourth quarter data).

[Read the 2024 green bond annual report for more information on its impact here]

Figure 3. The green bond’s positive effect on water management from 2020 to 2023

Among the funds, USD 6.90 million was allocated to sustainable water and wastewater management. Efforts included work on a regional municipal water project, construction of a drainage reuse system for a cooling tower, and improvements on a water pollution treatment facility. As a result, the company expects to see an increase in its water reuse rate and a reduction in wastewater discharge.

Figure 4. DDR5 offers reduced power consumption compared to its predecessor

SK hynix allocated its largest portion of the green bond’s proceeds for improving energy efficiency as the company invested USD 681.16 million in realizing significant related advancements in the company’s products. These developments included its industry-leading server DRAM DDR5 achieving a 70% increase in server bandwidth compared to DDR4, while its power consumption decreased by 14.4% compared to the previous generation. The performance per watt of the company’s latest SSD product, PS1010 E3.S, also improved by 85% from the earlier generation PE8110 E1.S.

Figure 5. An ecological park near SK hynix’s Icheon main campus which uses recycled water

A further USD 750,000 was allocated to terrestrial and aquatic biodiversity conservation. These funds supported construction of a large public ecological park near SK hynix’s Icheon campus which stretches the area of nearly four American football fields. At the park, crystal-clear water comes from the campus’ wastewater treatment plant and flows into the Jukdang Stream in Icheon.

Figure 6. Reduction of NOx emissions in tons at the Icheon and Cheongju fabs

Another USD 6.96 million was allocated to pollution prevention and control. The proceeds funded monitoring systems for atmospheric management, infrastructure for nitrogen oxide reduction, and a temperature reduction system in both the company’s Icheon and Cheongju fabs. Consequently, from 2020 to 2023, emissions of nitrogen oxides (NOx) were reduced by around 530 tons in these two major fabs. In addition, air pollutant analysis systems and water quality measurement systems have been installed in the fabs to monitor for environmental problems, minimize environmental harm, and make restoration efforts.

Figure 7. Financial Management Head Hyungmo Yang highlights how the bond supports SK hynix’s environmental goals

“Our triple-tranche bond offers varied investment opportunities while also supporting our sustainability efforts,” said Hyungmo Yang, head of Financial Management. “In particular, the green bond funds environmental innovations such as increased product energy efficiency, improved wastewater management, and pollution reduction. Going forward, the bond’s proceeds will continue to help us meet our environmental goals.”

The post SK hynix Wins IFR Asia Award for Innovative Sustainability Bond first appeared on SK hynix Newsroom.

• Semiconductor memory industry’s first issuance of ESG target-linked bond
• Carbon emissions reduction target highlights commitment to climate action
• Investors’ orders surpass initial plan to raise USD 500 million
• “Successful issuance underlines expectations for a turnaround in semiconductor industry and investors’ trust in SK hynix’s ESG management”

Seoul, January 11, 2023

SK hynix Inc. (or “the company”, www.skhynix.com) announced today that it successfully issued a Sustainability-Linked Bond (SLB) with a total amount of USD 1 billion.

“The company is highly encouraged by the large-scale investment even during the downturn in the semiconductor industry,” SK hynix said. “We see this as a result of global investors’ trust in the company’s commitment to climate action, along with the prospects of a turnaround in the semiconductor industry later this year.”

Orders from more than 304 global institutions surpassed the company’s expectations and thus, resulted in a decision to increase the total amount of the issuance from USD 500 million to USD 1 billion.

SLB is a type of bond for which the interest rates can vary depending on whether the issuer achieves predefined environmental, social, and governance (ESG) management objectives. SK hynix aims to reduce Scope 1 and 2* greenhouse gas (GHG) emissions intensity** by 57% compared to the company’s 2020 baseline by 2026.

* Scope 1 and 2: Scope 1 is direct emissions generated in the production stage, while Scope 2 is indirect energy-related emissions generated in the process of making electricity or steam used in workplace

** GHG emissions intensity: carbon dioxide emissions per unit(1Gb eq.) of semiconductor memory production

With SLB recently having been thrust into the limelight as one of the corporate sustainability management strategies, SK hynix became the first global semiconductor memory manufacturer to issue such bond.

The company plans to disclose the performance against target for GHG emissions reduction transparently in its Sustainability Reporting System (SRS) every year. The company, subsequently after 2026, will also measure the final target achievement during the first half of the following year and adjust interest rates according to the results.

Prior to the issuance, SK hynix received second-party opinions from global verification organizations on its predefined ESG targets. Moody’s and DNV*** evaluated that the company’s sustainability performance target is “ambitious” and that it will have a “significant contribution” to corporate sustainability management when achieved.

*** DNV (Det Norske Veritas): A global verification organization headquartered in Norway

Woo-hyun Kim, Head of Finance at SK hynix said, “The successful issuance of SLB is seen as a result of global investors’ recognition of the company’s commitment to climate action,” adding the company “will continue to lead ESG management and contribute to increasing both economic value (EV) and social value (SV).”

Meanwhile, along with SLB, SK hynix issued a green bond with an amount of USD 750 million along with SLB. Green bond is a type of bond with a special purpose, limited to use only to fund environmentally friendly projects. The company plans to invest in eco-friendly projects including water quality management, energy efficiency improvement, pollution prevention and ecological restoration with the funds raised through the green bond.

Disclaimer

“These materials are not an offer for sale of the securities of SK hynix Inc. in the United States. The securities may not be offered or sold in the United States absent registration with the U.S. Securities and Exchange Commission or an exemption from registration under the U.S. Securities Act of 1933, as amended. SK hynix Inc. does not intend to register any offering in the United States or to conduct a public offering of securities in the United States.”

About SK hynix Inc.

SK hynix Inc., headquartered in Korea, is the world’s top tier semiconductor supplier offering Dynamic Random Access Memory chips (“DRAM”), flash memory chips (“NAND flash”) and CMOS Image Sensors (“CIS”) for a wide range of distinguished customers globally. The Company’s shares are traded on the Korea Exchange, and the Global Depository shares are listed on the Luxembourg Stock Exchange. Further information about SK hynix is available at www.skhynix.com, news.skhynix.com.

Media Contact

SK hynix Inc.
Global Public Relations

Technical Leader
Kanga Kong
E-Mail: global_newsroom@skhynix.com

Technical Leader
Joori Roh
E-Mail: global_newsroom@skhynix.com

The post SK hynix Issues Industry’s First Sustainability-Linked Bond first appeared on SK hynix Newsroom.