TSMC (TSM, Financial), the world's largest semiconductor foundry, plans to inject $10 billion into its overseas subsidiary to hedge against foreign exchange risks. This strategic move aims to reduce forex hedging costs and enhance capital flexibility in managing currency risk. The capital increase involves issuing new shares, providing cash to manage existing and new hedge positions, particularly beneficial for TSMC's overseas operations requiring continuous hedging.
Recent strength in the New Taiwan dollar has raised concerns for Taiwan's export-driven economy. TSMC, a key supplier for Apple and NVIDIA, has already experienced a decline in operating margins due to currency fluctuations. The capital injection will support general investments, including bank deposits and bonds, allowing TSMC to transfer its forex holdings to the subsidiary, thereby reducing hedging costs.
This is the third such capital operation by TSMC since 2024, with the scale far exceeding previous instances. The company employs natural hedging strategies, matching dollar revenues with dollar liabilities, to minimize forex conversion risks.
