TSMC Injects $100 Billion to Combat New Taiwan Dollar Surge

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest dedicated independent semiconductor foundry, has announced a significant capital injection of 100 billion dollars into its overseas subsidiaries. This move, the largest in the company's history, is a response to the recent surge in the New Taiwan dollar, which has raised concerns about the region's export-oriented economy.

The strengthening of the New Taiwan dollar has led to increased hedging costs and reduced operating profit margins for TSMC. The company's CEO noted in June that the currency's appreciation has decreased the company's operating profit margins by several percentage points, underscoring the direct impact of currency volatility on the company's financial performance.

On June 25, TSMC's wholly-owned subsidiary, TSMC Global Ltd., approved a plan to issue new shares worth 100 billion dollars to its parent company. This capital infusion is intended to help TSMC manage the increasing costs of currency hedging and enhance its flexibility in handling foreign exchange risks. The investment will primarily be used for general purposes, including bank deposits and bonds, allowing TSMC to transfer its foreign exchange holdings to its subsidiaries and lower the costs of risk management.

This historic capital injection is part of a broader strategy by TSMC to manage the risks associated with currency fluctuations. It is the third such operation by the company in 2024, with each instance occurring during periods of New Taiwan dollar appreciation. The move is seen as a proactive measure to ensure that TSMC can continue to operate efficiently in a volatile currency environment.

The strengthening of the New Taiwan dollar has had a significant impact on the region's export sector. The currency's recent performance, including a record single-day gain in May, has led to a substantial increase in hedging costs. This has made it more challenging for export-oriented companies to manage their foreign exchange risks, as the cost of converting foreign earnings into the local currency has risen.

The capital injection by TSMC is a strategic response to these challenges. By transferring its foreign exchange holdings to its overseas subsidiaries, TSMC aims to reduce the costs associated with hedging and improve its overall financial flexibility. This move is expected to help the company navigate the complexities of a volatile currency market and maintain its competitive edge in the global semiconductor industry.