New York – The premium for SK Hynix’s American depositary receipts (ADRs) over its South Korean shares soared to more than 50 per cent, just three days after their US trading debut.
The ADRs gained 27 per cent on July 14, more than recovering from a 9.3 per cent drop a day earlier when a record sell-off in South Korea bled into the US session. That pushed their premium over the Seoul-traded common shares to 51 per cent, according to data compiled by Bloomberg, far above the 3 per cent gap they priced at last week in the US$26.5 billion (S$34.2 billion) offering.
The US listing has eased global investor access to key AI memory chipmaker SK Hynix, while taking some steam out of the blistering rally in its Korean stock. The extent to which the Seoul-listed shares can be converted into ADRs has been a key uncertainty, inhibiting flows that typically keep prices closer, according to traders.
“Actual arbitrage is completely frozen because the underlying new common shares do not list in Korea until July 29, the regulatory conversion pipeline is locked tight, sourcing shares to borrow in order to short the ADR is nearly impossible,” said Park Sanghyun, founder of Clepsydra Capital, a firm specialising in special-situations analysis.
Voracious demand for memory chips has made Korean stocks the hottest global trade, spurring wild volatility as investors try to maximise exposure. The ADR offering has been the latest catalyst for wild swings, after the launch of local leveraged ETFs in late May that magnify moves in the stocks.
Each SK Hynix ADR is equivalent to a 10th of a common share, according to a filing with the US Securities and Exchange Commission. According to a filing earlier in July, holders of the US instruments will be able to cancel them and receive the corresponding number of Seoul-traded shares.
Investors may not be able to later exchange the common stock for ADRs, however, as such a transaction could require approvals such as permission from Korean regulators. The ADR books will be closed for issuance and cancelation until July 29, as newly issued common shares in Korea are not transferable until they are listed on the Korea Exchange, according to a notice from Citigroup Inc., the depositary bank for the ADRs.
Tuesday’s jump in the ADRs came as related options began trading on US exchanges, giving traders in the world’s largest derivatives market easier access.
SK Hynix shares rose as much as 13 per cent in South Korea on Wednesday, following the New York gains. Meanwhile, shares of memory peer Samsung Electronics climbed 8per cent after Bloomberg reported it is in the early stages of exploring a potential ADR offering.
SK Hynix’s US listing has become a closely watched gauge of demand for overseas offerings, with Nasdaq president Nelson Griggs saying its success is spurring other international companies to consider the United States for either initial public offerings or similar ADR sales. BLOOMBERG
