SK Hynix’s $29 bln US debut may rewrite ADR trade

Samsung Electronics Co

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The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Hudson Lockett

    HONG KONG, June 25 (Reuters Breakingviews) - Typically a company's shares fall when it reveals plans to issue more. Not so for SK Hynix 000660.KS, whose stock rose 11% on Thursday after the South Korean memory chipmaker announced plans to raise as much as 45.45 trillion won ($29.4 billion) in the U.S. That would mark the largest Wall Street debut outside the recent initial public offering of SpaceX SPCX.O. It could also revive demand for issuing American Depositary Receipts, an instrument previously associated with Chinese tech groups that are now, partly due to Sino-American tensions, less able to capitalise on global AI hype.
The timing is prime for SK Hynix, which recently surpassed rival Samsung Electronics 005930.KS to become Seoul’s largest listed company at $1.2 trillion. It doesn't need the cash but proceeds, earmarked for building factories and buying equipment, would more than cover this year’s 38.8 trillion won in estimated capital expenditures, per Visible Alpha. 
Rather than take the share placement as a dilutionary threat, investors appear more excited at the prospect of a valuation re-rating for the South Korean firm that would bring it more in line with U.S.-listed peers. Granted, some of Thursday's gains came on the back of strong results from American peer Micron Technology MU.O. Yet SK Hynix has risen more than 190% since Reuters reported in late March that it planned to submit a filing in the U.S., more than doubling gains of about 90% by Samsung Electronics over the same period.
The revaluation hopes to follow a logic similar to that behind a boom for Chinese tech listings in the U.S. during the 2010s: direct access to the world's deepest pool of liquidity and expert analysts already tracking industry peers can help bolster the market value ascribed to a stock. In New York, Micron, for instance, trades on a multiple of 5.3 times estimates of its 12-month forward book value, while Taiwan's TSMC 2330.TW trades at 7.8, both well above SK Hynix’s 3.7 multiple, per LSEG. And TSMC’s ADRs trade at a 15% premium to its Taipei shares, per a Breakingviews calculation, in part reflecting a lack of full fungibility.
SK Hynix’s U.S. listing will demonstrate just how much benefit Asian chipmakers might derive from launching their own ADRs. Analysts at HSBC on Thursday applied a 20% premium to the company's valuation multiple, in part reflecting better access to global investors. That would make the same playbook all the more magnetic to Japan’s Kioxia 285A.T, which also has ADR plans. Even Samsung, which has previously shrugged off the idea, may find the draw of revaluation too great to resist. With listings like SpaceX in hand, Nasdaq does not need such business but will welcome it nonetheless. 
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CONTEXT NEWS
SK Hynix announced plans on June 24 to raise as much as $29.4 billion from a listing on Nasdaq, the second-largest share sale on record after the $85.7 billion initial public offering of SpaceX. The firm expects its American depositary receipts to begin trading on July 10 and will use proceeds to build chip factories and buy chipmaking equipment.
The $1.2 trillion chipmaker has risen 174% since Reuters reported on March 25 that it planned to submit a confidential filing to sell shares in the U.S. It has overtaken rival Samsung Electronics, which rose 88% over the same period, to become the world’s most valuable memory chipmaker.
     

(Editing by Una Galani; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on LOCKETT/ hudson.lockett@thomsonreuters.com))