Global investment bank (IB) UBS Group said investors should buy the American depositary receipts (ADR) of SK hynix that are set to be issued and sell the shares listed on the Korean stock market.
According to a Bloomberg News report on the 7th, UBS Group's corporate sales and trading desk wrote this in a client note.
It said ADRs could be more attractive to investors such as hedge funds because they are more efficient to hold and have lower expense than shares listed in Korea.
It added that many global portfolio managers who had not previously included SK hynix shares listed in Korea in their investment asset class could buy the new SK hynix ADR.
Bloomberg News reported that UBS's client note said, "Buying ADRs from the first day of issuance and selling the Korean common shares looks like a no-brainer sure transaction."
It explained that this is because the ADR price is very unlikely to be discounted, making it a transaction with extremely limited dollar at risk asset exposure.
Meanwhile, SK hynix will list its ADR on Nasdaq on the 10th. It also began the official marketing process for the U.S. listing on the 6th.
According to filings submitted to the U.S. Securities and Exchange Commission (SEC), SK hynix is pushing to sell ADRs equivalent to about 17.79 million common shares. That amounts to about $28 billion.
UBS also said that global retail investors, whose holdings of SK hynix shares listed in Korea are relatively low, could find the ADR attractive.
It added, "There has been some news that U.S. securities firms are providing overseas retail investors with access to Korean stocks, but all of this is very recent," noting, "Global retail investors' SK hynix equity ratio remains very low, and the new ADR issuance will dramatically improve accessibility."
It was also forecast that for overseas investors considering buying SK hynix ADRs, whether the Korean common shares and the ADRs are exchangeable will be important.
UBS said, "Investors will focus on the potential foreign headroom to be granted to SK hynix for future conversions from domestically listed shares to U.S.-listed subordinated ADRs," adding, "If there is no flexibility in such headroom, accessibility will be inefficient and insufficient, making it highly likely that the U.S. ADR line will trade at a clear and persistent premium to domestic shares."
Bloomberg News reported that ADRs listed in the United States often trade at a premium if they are not fully exchangeable with the shares listed in their home market.
According to data compiled by Bloomberg, ADRs issued by Taiwan's TSMC traded this month at an average premium 16% higher than the common shares traded on the Taiwan stock market.