SK Hynix wipes out US debut gain in one day of trading
South Korean AI giant SK Hynix has already erased all of its 12.7% gains from its US debut last week.
Incredibly, the largest first-time US share sale by a foreign company sustained gains for less than one trading day before the math turned against every American who bought its American Depositary Receipt (ADR) listing.
The high-bandwidth memory chipmaker and one of Nvidia’s largest customers is becoming a household name due to its proximity to the AI investment mania.
Its ADRs rose 12.7% on the Nasdaq debut Friday, closing at $168.01. Meanwhile, its Seoul-listed common stock fell 12.7% by Monday afternoon, priming US markets for a dump before Nasdaq could even open for pre-market trading.
In other words, thanks to a record-shattering ADR listing, US money flowed into South Korea’s largest company on Friday, followed immediately by South Korean money dumping Monday by roughly the same percentage.
As of 1pm Monday in Seoul and inclusive of the one day boost from the ADR listing on Friday, shares in South Korea have actually lost 14% of their value.
Each American Depositary Receipt represents one-tenth of a real SK Hynix share. The ADR and South Korean stock are claims on the same company with a few, minor legal distinctions.
When Seoul reopened and dropped almost the same percentage as Friday’s gain in New York, it repriced the exact asset backing every ADR sold in New York two sessions earlier.
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Friday’s premium reversed over the weekend
SK Hynix priced 177.9 million ADRs at $149 apiece on Thursday. The sale raised about $26.5 billion, comfortably topping Alibaba’s 2014 debut and ranking among the largest US ADR listings ever.
Bank of America, Citigroup, Goldman Sachs and JP Morgan ran the deal. The company’s primary listing remains in Seoul.
American enthusiasm did what American enthusiasm does best: Led to overpaying for the most popular names. The ADRs opened mid-day on Friday at $170, 14% above the offer price, and briefly touched $177.
By Friday’s close they traded at a premium of roughly 15% to the Seoul shares. By Monday afternoon in Seoul, those profits had obviously disappeared.
A buyer of Friday’s new ADR paid about 15% more than the Seoul market said the underlying share was worth. By Monday morning, Seoul bid 10% less at the start of the morning, with a worsening figure below 12% as the day went on.
Anyone who bought the ADR is now holding a cheaper asset that kept getting cheaper.
On Friday, SK Hynix’s spokesperson told CNBC, “It’s a kind of dream, and now it’s a dream come true.” He insisted the appetite for the company’s memory chips would persist from “structural” demand.
The ADR offering itself was more than seven times oversubscribed. There was no shortage of dollars willing to pay top dollar.
Unfortunately, for US buyers who chased the record-setting debut on its first day trading on Friday, the scoreboard has already flipped for a win across the Pacific.
The company US investors bought into on Friday is worth about the same amount less in South Korea as of Monday afternoon in Seoul.
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