SK hynix American depositary receipts (ADRs) are scheduled to list on Nasdaq on the 10th of next month. In the securities market, there are expectations that the ADR listing will improve access for U.S. investors and draw in new capital flows.
If SK hynix ADRs list on the U.S. stock market, they could be directly included in global exchange-traded funds (ETFs) and funds, and if they are later added to the Nasdaq 100 index, passive money tracking the index could also flow in. If a price gap arises between the domestic common shares and the ADRs, demand for arbitrage trades could emerge.
SK hynix previously disclosed that it had decided on a paid-in capital increase via a third-party allotment to issue 17.79 million common shares. The new shares issued will be deposited with overseas institutions, after which depositary receipts (DRs) based on those underlying assets will be issued, and they are scheduled to list on the U.S. Nasdaq exchange on July 10.
The funds to be raised through this ADR issuance total 45.4535 trillion won. Of the secured funds, 31 trillion won will go to building the first-phase fab at the Yongin semiconductor cluster, 19 trillion won to the Cheongju P&T7 advanced packaging fab, and 12 trillion won to acquiring extreme ultraviolet (EUV) lithography equipment.
Experts first expect direct inflows via semiconductor ETFs and global funds. Yoon Jae-hong, a researcher at Mirae Asset Securities, said, "For TSMC, which is most similar to SK hynix, the number of global funds that include the common shares is 9,994 and 12,748, respectively, a small difference, but there are about 4,500 global funds and ETFs that include only TSMC ADRs," adding, "When SK hynix lists ADRs, inflows via major ETFs and funds, including those focused on semiconductors, can be expected."
Mirae Asset Securities cited as ETFs with a high likelihood of adding SK hynix ADRs the VanEck Semiconductor ETF (SMH), the iShares Semiconductor ETF (SOXX), and the Invesco QQQ ETF that tracks the Nasdaq 100. Assuming a maximum weighting of 2.5%, potential demand from semiconductor ETFs and Nasdaq 100 ETFs is estimated at $340 million and $450 million, respectively, or about 2.7% of the ADR issuance size.
If they are added to major indexes such as the Nasdaq 100, passive inflows can also be expected. Passive money refers to funds that flow in as ETFs and index funds tracking specific indexes automatically buy the stocks added to those indexes.
Yeom Dong-chan, a researcher at Korea Investment & Securities Co., analyzed, "With SK hynix ADRs listing, there is a possibility of inclusion in the Philadelphia Semiconductor Index, the ICE Semiconductor Index, and the Nasdaq 100 Index."
In particular, because the Nasdaq 100 conducts its regular rebalancing based on data as of the end of November, inclusion in December is possible. The Philadelphia Semiconductor Index and the ICE Semiconductor Index conduct regular changes in September for stocks that have been listed for three months as of the end of July, so the likelihood of inclusion this year is low.
However, considering that the ADR issuance size is not large, passive ETF demand is expected to be around 2% of the ADR float.
If a premium forms on the ADRs depending on market demand, arbitrage demand could also appear. Citing TSMC's ADR listing case, Yoon said, "Passive fund demand for ADRs can translate into a premium," adding, "If ADRs trade more expensively than the common shares, arbitrageurs will sell the ADRs and buy the common shares to execute the trade."
On the fundamentals side as well, conditions are seen as remaining favorable. That is because Micron, by expanding long-term supply agreements through strategic customer agreements (SCA), is prompting projections that the memory upcycle could last longer than expected.
With earnings improvement expected amid the artificial intelligence (AI) investment boom and anticipated inflows via the ADRs, brokerages are raising their target prices for SK hynix in succession. They include Mirae Asset Securities (4.2 million won), Hana Securities (3.6 million won), and Hyundai Motor Securities (3.3 million won). Kim Young-gun, a researcher at Mirae Asset Securities, said, "We are raising this year's high bandwidth memory (HBM) price increase rate from 25.3% to 43.7%," adding, "The share of long-term agreements (LTA) will also exceed 50%."