TSMC to Inject $10 Billion Capital to Unit to Counter FX Swings

(Bloomberg) — Taiwan Semiconductor Manufacturing Co. is set to inject $10 billion in capital to its overseas unit to shore up its currency hedging operations, its biggest such move to counter a volatile local exchange rate.

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TSMC Global Ltd., a wholly-owned unit of the world’s largest contract chipmaker, has approved a plan to increase its capital by issuing $10 billion worth new shares to its parent to help it reduce foreign exchange hedging costs, the company said in a statement. It’s the third such deal since 2024, and by far the largest. They occurred during periods when the Taiwan dollar tended to appreciate. The moves grant TSMC Global — the vehicle responsible for managing overseas investments and hedging — more capital flexibility in managing exchange rate risks.

The capital injection is for general investments, mainly bank deposits and bonds, according to a separate statement from Taiwan’s Department of Investment Review. The purpose was for TSMC to shift its own foreign exchange holdings to the unit to help with hedging costs, the statement said.

Recent strength in the Taiwan dollar has caused worries in Taipei about the economy’s heavy reliance on exports. In May, the currency notched its biggest single-day gain since the 1980s, spurring calls from the central bank to curb speculation. The cost of hedging swings has surged this year, with one-year implied volatility for the local currency hitting the highest since 2011 on Wednesday.

“Generally speaking, the heightened forex volatility would mean that banks may be adjusting their margin requirements,” said Philip McNicholas, Asia sovereign strategist at Robeco based in Singapore. “Issuing new shares, and bringing in an immediate cash injection, may help companies manage the margin requirements on both existing and new hedges.”

“The US dollar cash can also be useful for companies’ overseas operations, which could also require consistent hedging,” McNicholas added.

TSMC, the main chipmaker to Apple Inc. and Nvidia Corp., is by far the island’s biggest company and exporter because the majority of its production is domestic. A stronger Taiwan dollar hurts exporters because the US dollars they earn from sales abroad would translate into less of the local currency, or they would need to raise their prices overseas and risk denting demand.