As SK Hynix prepares for its Nasdaq listing, investment bank UBS has advised investors to purchase American Depositary Receipts (ADRs) instead of domestic shares. ADRs are securities that allow foreign companies' stocks to be traded in the U.S. UBS believes that local investors will find it easier to invest in SK Hynix, potentially leading to a premium on the price.
On July 7, Bloomberg reported that UBS's sales and trading desk recommended clients buy SK Hynix ADRs while selling Korean stocks. UBS analyzed that the U.S. certificates are more convenient and cost-effective for hedge funds and other foreign investors.
Global portfolio managers and U.S. individual investors, who may find it challenging to directly hold Korean stocks, could also see new demand. UBS pointed out that access to Korean stocks through U.S. brokerages remains limited, and the proportion of global individual investors holding SK Hynix shares is low.
SK Hynix ADRs are set to begin trading on Nasdaq on July 10, with a structure where 10 ADRs represent one common share.
A key factor influencing the price difference is the potential for conversion between domestic shares and U.S. ADRs. According to filings with the U.S. Securities and Exchange Commission (SEC), ADR holders can cancel their ADRs to receive Korean common shares. However, converting common shares back into U.S. ADRs may require approval from Korean authorities.
UBS believes that these conversion restrictions could drive up prices. If it is difficult to freely convert domestic shares into U.S. ADRs, the volume traded on Nasdaq may be limited. In such a case, increased investor demand could lead to U.S. ADRs trading at a higher price than domestic shares.
A similar case is noted with Taiwan's TSMC. According to Bloomberg, TSMC ADRs listed on the New York Stock Exchange traded at an average of 16% higher than shares listed in Taiwan this month.
* This article has been translated by AI.
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