South Korean semiconductor company SK Hynix (KRX: 000660) will list itself on the Nasdaq through an offering that could be worth nearly $28 billion, making SK Hynix close to one of the largest initial public offerings ever on the market. SK Hynix plans to sell 177.9 million American depositary receipts, while investor subscriptions for the IPO have already reached more than seven times the planned number.
According to previous expectations, the amount was close to $26.5 billion, but now, according to the prospectus, it is closer to $28 billion.
Shares of Seoul-listed SK Hynix have jumped about 700% in the past year, giving the company a market value of more than $1 trillion and bringing it closer to Micron Technology (NASDAQ: MU), its main US-listed rival.
SK Hynix uses Nasdaq to reach US investors as demand for ADR revives
The use of American Depositary Receipts or ADRs allows an investor in America to invest in a foreign company using the US market. This helps the company reach more funds, large institutions and investors who do not deal in Seoul.
Why does structure matter? Settlement of international settlements was one of the most important ways for Asian companies to obtain financing from the United States. This market became unattractive when Didi Global decided to list in the US in 2021 and subsequently came under regulation from China.
Meanwhile, Kioxia Holdings (TYO:285A) is preparing a similar listing in the US Hynix. The Japanese chipmaker’s stock is up nearly 2,800% in Japan over the past year, so it’s also trying to catch up with U.S. demand while memory chip stocks remain hot.
The SK Hynix deal is no ordinary A-lister. The company is already traded on the Korea Stock Exchange, so the Nasdaq sale is a secondary listing.
Banks collect fees as primary buyers take a significant portion of the supply
The main banks shorting SK Hynix Nasdaq are Bank of America (NYSE: BAC), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), and JPMorgan Chase (NYSE: JPM). Other banks with smaller roles include Cantor Fitzgerald, Mizuho Financial Group (NYSE: MFG), and Stifel Financial (NYSE: SF).
Total fees could exceed $140 million. This includes an underwriting fee of 0.5% of the funds raised, as well as an additional incentive payment from SK Hynix. The fee rate is low for a deal of this size, partly because the sale is huge and partly because SK Hynix is not a private company trying to sell the market from scratch.
However, the green shoe requirement does not apply to SK Hynix’s roster. In this regard, banks will not be able to issue more shares if demand remains high. Therefore, the subscription fees will not be increased above the prevailing levels.
It’s also worth noting that Citibank (NYSE:C) will receive some revenue from other services the company offers during the listing process. Citibank is the depositary bank for SK Hynix; Therefore, it will deal with all American Depositary Shares traded in the United States. It will be able to generate some income through stock conversion and dividend payments from stock receipts.
The big bidders have come through. Situational awareness firm Leopold Aschenbrenner and Baillie Gifford have expressed interest in purchasing up to $7 billion of the total $28 billion on offer. This is a big part of the book, considering that personalization will be the next battle.
If SK Hynix acquires the entire offering, the offering would almost certainly be similar to Saudi Aramco’s (Tadawul: 2222) IPO, which was valued at about $29 billion.
For Wall Street, the total fees would be among the largest from an Asian company. Alibaba Group (NYSE: BABA) raised $25 billion in 2014, and that listing generated about $300 million in banking fees, based on Dealogic’s numbers.
Setting up ADR still comes with work. SK Hynix has to deal with depository bank rules, the ratio between each American receipt and the regular Seoul share, and the process of converting one form to another. Some emerging market regulators also fear that alternative deposit settlement market listings will withdraw funds from local markets, impact currencies, and weaken efforts to build stronger domestic capital markets.
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