UBS Group AG has told clients to buy SK Hynix’s planned US depositary receipts and sell its Seoul-traded stock, betting the new securities will command a premium.
The call came as the memory-chip maker began formally marketing its US listing on Monday amid surging investor demand for exposure to AI hardware.
Why UBS Favors the ADR Trade
SK Hynix is selling American depositary receipts (ADRs) representing about 17.79 million common shares. The offering is expected to be the second-biggest share sale in history after SpaceX.
According to Bloomberg’s report, UBS’s sales and trading desk said the receipts will be cheaper and more efficient for hedge funds to hold, making them more attractive.
UBS also said the ADRs could reach global portfolio managers who do not currently hold the Seoul-listed shares. The US line may give them a way to buy the stock.
The bank described the pair trade as scalable, with limited dollar-at-risk.
“It sounds like a no-brainer to be long depositary receipts and short the local line from day one. This is an extremely scalable trade given the very limited dollar at risk, as it is very unlikely that the depositary-receipt line goes to a discount,” the note read.
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The Conversion Question That Sets the SK Hynix ADR Premium
The Swiss bank noted that investors will focus on the “potential foreign headroom” SK Hynix receives for future conversions. Holders can cancel ADRs and receive Seoul shares, according to the SEC filing.
The reverse path is less certain, since converting Korean stock into ADRs may need approval from Korean regulators. According to the UBS,
“Without such headroom elasticity, the likelihood of inefficient and insufficient access is likely to result in the US line trading at a distinct and persistent premium.”
The pattern has precedent. Taiwan Semiconductor Manufacturing Co. (TSMC) ADRs traded at an average 16% premium to their Taiwanese shares this month, according to Bloomberg data.
Meanwhile, SK Hynix’s Seoul-listed shares have climbed more than 220% this year, lifting its market value toward $1 trillion. Whether the premium holds will become clear once both lines trade side by side.
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