[Exclusive] SK Hynix to List Treasury Shares on U.S. Stock Market as 'Value-Up Card' SK Hynix is pushing a plan to list its treasury shares on the U.S. stock market in the form of American Depositary Receipts (ADRs). This decision stems from the judgment that if ADRs are traded in the U.S. market, the company's value can be re-evaluated to levels comparable to competitors such as Micron. According to the investment banking (IB) industry on the 9th, it is understood that SK Hynix has received various proposals from overseas investment banks regarding the listing of 2.4% of its treasury shares (17,407,808 shares) as ADRs. An IB industry official stated, "The group is sincerely pursuing this to enhance corporate value," adding, "They will likely begin selecting a lead manager soon." An SK Hynix official commented, "We are reviewing various methods of ADR issuance, not just treasury shares, but nothing specific has been decided yet." A Depositary Receipt (DR) is a substitute security issued to facilitate the circulation of securities in overseas markets. When issued in the U.S., it is called an ADR. It works by having a company deposit its original shares with a domestic custodian institution, and based on this collateral, a local depository (such as a bank) issues the depositary receipts, enabling them to be traded in the overseas market. SK Hynix's move to issue ADRs is interpreted as an attempt to escape the chronic risk of undervaluation. If traded on the New York stock market, the company can expect inflows from passive funds, such as Exchange Traded Funds (ETFs), and long-only funds that invest exclusively in the U.S. Taiwan’s TSMC also listed ADRs in the U.S. in 1997, providing an opportunity for its stock price to be re-evaluated. With the government and the ruling party pushing to make treasury share cancellation mandatory, this method of utilizing treasury shares is evaluated as consistent with "Value-up" policies. Lee Nam-woo, Chairman of the Korea Corporate Governance Forum, said, "While canceling treasury shares has the positive effect of immediately increasing shareholder value, listing ADRs also helps improve governance," adding, "It can be a 'win-win' for both the company and shareholders." TSMC Also Surged After Listing Treasury Share ADRs... "Massive Inflow of Global ETF Funds" PER Less Than Half of Micron's... Shareholder Return Effect Without Share Cancellation Taiwan’s TSMC, which dominates the global foundry market, listed its ADRs on the New York Stock Exchange (NYSE) in October 1997. At the time, it purchased a portion of the original Taiwanese shares held by Philips, its second-largest shareholder, and listed them as ADRs. TSMC increased its ADR issuance volume from around 2-3% of total outstanding shares to approximately 20%. TSMC's ADR listing served as a catalyst driving up the price of the original shares listed on the Taiwan stock exchange. In the New York market, global investors assigned high valuations to TSMC's corporate value compared to local peers. This immediately led to upward pressure on the value of the original Taiwanese shares. The phenomenon where ADRs traded at a higher price than TSMC’s local share price ultimately brought about a re-evaluation of the original shares. Experts believe that, like the TSMC case, SK Hynix can expect an immediate re-evaluation if it lists its treasury shares as ADRs. SK Hynix is considered a perfect comparable company to U.S. memory semiconductor manufacturer Micron in terms of product portfolio and profit cycles. However, its stock price remains stuck in a relative state of undervaluation. SK Hynix's price-to-earnings ratio (PER) is 11.4 times based on this year's expected earnings, significantly lower than Micron's (28.7 times). The cause of the chronic undervaluation stems from supply and demand. Since it is traded only on the domestic stock market, accessibility for U.S. local long funds or passive (index-tracking) funds is restricted, resulting in insufficient capital inflow. The TSMC ADR weight in the major U.S. semiconductor ETF 'SMH' is 9.1%, and in 'SOXX', which is famous among Korean investors investing abroad, it reaches 3.77%; however, SK Hynix's weight in these ETFs is 0%. Despite forming an AI semiconductor value chain "alliance" centered on Nvidia, only SK Hynix has been left out. Kim Sun-woo, a researcher at Meritz Securities, stated, "If SK Hynix lists ADRs, it will be an event that opens a new horizon for the valuation of domestic companies." SK Hynix's ADR listing is evaluated as a new attempt in the domestic capital market, which previously only considered dividend payments and share buybacks/cancellations as shareholder returns. In the third quarter of this year, SK Hynix shifted to a net cash position, holding more cash than debt, and faced pressure for shareholder returns. In this situation, ADR listing could be a method to boost corporate value through a "third way," rather than traditional shareholder return policies. Shareholders can enjoy profits from stock price increases, and the company can raise large-scale funds in the market while minimizing borrowing and new share issuance. Corporate transparency also increases significantly upon ADR listing. It must meet strict U.S. disclosure regulations and accounting standards, which has the effect of improving governance to global standard levels. Points are also raised that the treasury shares held by SK Hynix are not sufficient for ADR issuance. Excluding treasury shares subject to exchange for Exchangeable Bonds (EB) issued in 2023, the treasury shares SK Hynix can utilize for ADR issuance amount to 2.4% of total outstanding shares, or around 10 trillion KRW. An industry official pointed out, "10 trillion KRW is at the level of a middle-cap stock in the U.S.," adding, "To have a meaningful impact on corporate value enhancement, it seems necessary to issue ADRs after purchasing additional treasury shares."