As SK hynix moves to list American Depositary Receipts (ADR), investors are split between expectations of escaping a "discount (undervaluation)" and concerns about a "flood of supply."
With ADRs issued, there is anticipation that SK hynix could be valued similarly to U.S.-listed semiconductor companies like Micron in the United States, while at the same time concerns are being raised that the value of existing shares will be diluted.
An ADR is a depository receipt (DR) issued in the United States, an alternative security issued to allow shares of domestic corporations to be traded in overseas markets. When a domestic corporation deposits its shares with a domestic custodian, an overseas depository issues and distributes depository receipts based on them. It has the same effect as listing shares on an overseas market.
SK hynix said on the 25th that it had confidentially submitted a registration statement for a public offering to the U.S. Securities and Exchange Commission (SEC) for an ADR listing. The goal is to list ADRs within the year, but the size, method, and schedule of the offering have not been finalized.
SK hynix's ADR listing is seen as a preemptive move to secure funds amid large-scale facility investments in the era of artificial intelligence (AI) semiconductors.
Kwak Noh-jung, CEO of SK hynix, said at the annual general meeting on the 25th, "Financial strength is essential to continue investment and growth to respond to the AI era," adding, "We aim to secure more than 100 trillion won in net cash for stable investment." As of last year, SK hynix's net cash stood at 12.6 trillion won. This means securing about an additional 87 trillion won.
SK hynix plans to invest about 600 trillion won by 2050 to create a semiconductor cluster in Yongin, Gyeonggi Province. In addition, it plans to invest 39 trillion won in Cheongju, North Chungcheong Province, and 5 trillion won in Indiana in the United States to build plants, requiring massive funds.
Experts are divided on how listing ADRs in the United States by SK hynix will affect domestic shares.
Some experts expect the value of domestic shares to be reassessed after the U.S. ADR listing.
SK hynix's estimated price-earnings ratio (PER) for this year is 5.9 times, lower than the PERs of 7.8 times and 17.6 times for U.S.-listed semiconductor companies Micron and SanDisk. Experts say that if SK hynix is listed in the U.S. market, where capital is abundant, it can narrow the gap with AI big tech such as Micron or Nvidia.
Kim Rok-ho, an analyst at Hana Securities, said, "If the reason Micron is receiving a better multiple (price multiple) is perhaps because of the country where it is listed, then when SK hynix is listed in the United States, it could narrow the valuation gap or receive a better multiple," adding, "If ADRs are listed, SK hynix's multiple appears likely to receive a premium."
Kang Da-hyun, an analyst at KB Securities, analyzed, "A U.S. ADR listing is expected to act as a catalyst that expands access for global passive funds and spurs a reassessment of Korean stocks."
An official in the securities industry said, "ADR shares can be exchanged with domestic shares," adding, "In the case of TSMC, ADR-listed shares trade about 30% higher, and if SK hynix also trades at a premium to the common stock, a reassessment of the common stock could occur in the process of exchanging overseas and domestic shares."
On the other hand, among domestic shareholders, there are strong concerns about dilution of share value. At this shareholders' meeting, an individual investor pointed out, "Since treasury shares have already been canceled, isn't new stock being issued for ADR issuance?"
Some experts are also mentioning the possibility that the ADR listing will be pursued through the issuance of new shares. With no treasury shares remaining after canceling about 12 trillion won worth, equivalent to 2.1% of total shares, last month, an ADR listing through the issuance of new shares is seen as likely.
Kim Seon-woo, an analyst at Meritz Securities, explained, "The Commercial Act amendment includes a provision for 'mandatory cancellation when repurchasing treasury shares,'" adding, "SK hynix's push for ADRs through an overseas new share issuance is interpreted as an attempt to respond to this policy direction."
In the market, considering the equity retention of SK Square, SK hynix's largest shareholder, new shares are expected to be issued in the range of about 10 trillion to 15 trillion won.
However, some analysis suggests that even if SK hynix lists ADRs through a new share issuance, new shareholder return policies could follow.
Kim said, "In the current social and political structure, where efforts to enhance shareholder value are required, for SK hynix to meet the goal of enhancing shareholder value, it is expected to use the entire cash inflow from the new share issuance for shareholder returns," adding, "Before the detailed conditions for ADR issuance are announced, we estimate that various share repurchase or cancellation plans or large-scale dividend plans will be drawn up."