Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
South Korea dominates the market for memory chips — but it’s the US that is the land of capital-raising opportunity. Korean group SK Hynix has turned to New York for its sale this week of around $28bn in American depositary receipts. The proceeds will help fund its enormous AI-related investment plans. And the price at which the ADRs trade will be a useful gauge of how exuberant the AI landscape has become.
The deal is the biggest ever share sale in the US by a foreign company, surpassing Alibaba’s $25bn float in 2014. The sale size, as well as some jitters about the rush of AI-related investment, have contributed to a roughly one-quarter fall in the chipmaker’s Seoul shares in the past fortnight. AI believers may shrug: the stock has been swinging wildly for months, having moved over 5 per cent in either direction on over 50 occasions this year — and has still managed to more than triple.
Investor demand for the US sale has been hot. The shares were seven times oversubscribed, and in a sign of high demand among active traders, several fund managers had already sought approval for leveraged products that would amplify returns from the ADRs’ daily moves.
Enthusiasm, too, could stem from long-term investors thinking that the Korean memory group looks cheap compared with homegrown chip champions. American peer Micron trades on six times its forecast 2028 earnings according to Visible Alpha — the year analysts generally expect revenue from the current boom to peak — while in Seoul, SK Hynix and its crosstown rival Samsung Electronics are each on a multiple of four.
That gap is unlikely to narrow as a result of the US shares. SK Hynix’s deal is big, but it represents less than 3 per cent of a $1tn market value. Both Koreans suffer from their size: combined they account for just over half of South Korea’s entire market capitalisation. Big investors’ limits on concentration mean they can’t usually hold enough of either company’s equity to fully reflect that heft.
In theory, SK Hynix’s US and Korean shares should trade at the same value, but practice suggests otherwise. Fellow chip boom beneficiary TSMC is the standout example. Typically, an ADR would trade no more than 5 per cent above or below the underlying stock, according to Goldman Sachs analysts. Some friction comes from exchange rates, local exchange rules and costs, and timezone differences. The rest should, in theory, be arbitraged away.
Yet the Taiwan titan’s US securities, worth about a fifth of its $2tn market value, have persistently traded above its hometown stock and often by 20 per cent or more in the past three years. The option to swap its US ADRs for shares in Taipei — but not vice versa — is one reason. Another attraction is that US trading is also far more liquid. Like TSMC, SK Hynix is likely to be quickly included in multiple indices, supporting demand for the ADRs.
Perhaps it will be some comfort to those with longer time horizons that market anomalies don’t last for ever: TSMC’s premium reached similar peaks in 2009 as smartphone demand boomed, but two years later, shrank to zero. SK Hynix’s new US stock might be better as a means of measuring the AI craze than investing in it.
[email protected]
