SK hynix Inc. (NASDAQ:SKHY) saw its American depositary shares trade near $152 ahead of Friday's open, with the premium over the Seoul-listed common stock compressing sharply to approximately 22%. This marks a significant decline from the 38% premium observed just two trading sessions earlier, signaling a potential shift in market dynamics as the company approaches a key conversion event.
Premium Compression and Key Data
The compression represents about 41% of the previous premium being erased. As of Thursday's close, the ADS was trading just 2.2% above its $149 offer price, compared with a 30.1% premium at the earlier reference point. The table below highlights the changes:
- U.S. ADS price: $193.92 (earlier reference) to $152.31 (Thursday close), a decline of 21.5%.
- Calculated premium versus Seoul parity: 38.0% to 22.4%, a drop of 15.6 percentage points.
- Premium over $149 offer price: 30.1% to 2.2%, a decline of 27.9 percentage points.
The earlier comparison is based on the ADS closing price from Tuesday and the Seoul close from Wednesday, while the Thursday figure uses the most recent local close of 1,842,000 won and Friday's exchange rate. Each group of ten ADSs equals one common share. Markets in South Korea were closed on Friday due to a holiday, and Nasdaq remained in premarket trading at the dateline.
Conversion Process and Key Dates
The "when-issued" trading period has ended, with the provisional ticker SKHYV having been used until July 10 before the permanent SKHY symbol took effect. The next major catalyst is the conversion process. Korea Securities Depository has indicated that applications for conversion are expected to open following the planned July 29 domestic listing, though the exact launch date remains subject to Citibank's guidance.
The issuance of new ADRs from local shares remains limited, according to the depository, but there is no restriction on converting ADRs to local shares. These rules create genuine obstacles, including ongoing settlement delays, transaction fees, and the restricted availability of ADRs, which could keep some of the discrepancy in place.
Earnings and Market Context
SK hynix completed its $26.5 billion offering on July 14, issuing 17.79 million common shares to Citibank to back 177.9 million ADSs. The company is set to announce second-quarter earnings on July 29 at 9 a.m. Seoul time. SK Group Chairman Chey Tae-won emphasized future demand, stating, "Memory chips will continue to be needed, so their value will trend upward over time."
According to Meritz Securities senior analyst Kim Sunwoo, suppliers are currently meeting between 75% and 80% of DRAM demand, a figure he anticipates will decline to the 60% range in 2027. This data supports earnings expectations but does not directly determine the cross-listing price.
Valuation and Market Flows
Based on forward earnings, the U.S. listing is still trading near Micron Technology Inc. (NASDAQ:MU). SK hynix is valued at 5.71 times earnings, while Micron's multiple is 5.93 times. However, this discount to Micron does not eliminate the premium over SK hynix's domestic shares. Market flows could play a bigger role before July 29. This week, Korean margin loans reached 34.37 trillion won, and assets in a double-leveraged SK hynix fund totaled $7.78 billion.
From August 5, regulators will raise the minimum cash balance required for single-stock leveraged ETFs to 30 million won, a threefold increase. The ADS showed minimal movement before the opening bell, while Nasdaq 100 futures declined 1.55%. The Philadelphia semiconductor index remained over 19% lower from its late-June peak.
Risks and Outlook
Risks include potential delays in the conversion process, though the issuance cap supports scarcity. If forced deleveraging occurs, chips experience further declines, or the won softens, the gap might expand once more. The coming week will reveal if the 22% difference persists as both listings resume trading. A more significant test occurs July 29, with quarterly results and conversion processes set to take place.
