SK Hynix registered 1.779 billion shares (25% of total) as the custodial limit with the US Securities and Exchange Commission (SEC) for its American Depositary Receipts (ADR), but actual conversion from domestic shares is capped at 2.5% without additional approval procedures, according to industry sources on the 19th. The 25% registration serves as a reserve buffer to accommodate ADR-to-domestic share conversions and subsequent reversions, not as an actual conversion ceiling. SK Hynix ADR closed at $154.03 on the 17th, maintaining a 24.6% premium over domestic shares priced at 1.842 million won, with regulatory constraints preventing immediate premium elimination through additional conversions.
SEC Filing Shows 10x Custodial Buffer Over Listed ADR Volume
SK Hynix specified 1.779 billion shares as the custodial limit in its depositary receipt filing (F-6) submitted to the SEC, representing ten times the 2.5% (177.9 million shares) actually listed as ADR. An anonymous industry source stated that the 25% registration represents reserve inventory for cases where ADRs convert to domestic shares and subsequently return to ADR form, not an indication of actual conversion capacity from domestic shares. Korea Securities Depository is scheduled to list new shares issued by SK Hynix for the ADR program on the 29th.
TSMC Precedent Required Multi-Year Approval Process for ADR Expansion
TSMC increased its ADR ratio from 2.9% at the 1997 listing to the current 20.5% through procedures equivalent to additional offerings over multiple years, not through natural conversion. According to SEC records, TSMC's initial investors Taiwan National Development Fund and Philips converted existing shares to ADR multiple times between 2001 and 2007. Each conversion required approval from TSMC's board of directors and Taiwan's Financial Supervisory Commission (FSC), plus SEC registration, constituting procedures equivalent to additional public offerings rather than individual shareholder-initiated conversions.
Market Expects Natural Premium Convergence Without Regulatory Changes
A financial investment industry official stated that eliminating the premium through ADR conversion in the short term is impossible unless SK Hynix undergoes additional conversion procedures similar to TSMC involving shareholder requests and approvals from authorities and the board, or unless domestic regulations are revised to enable free bilateral conversion between domestic shares and ADRs. The official added that the market has no choice but to wait for the premium gap to narrow naturally according to market trends for the time being.
FAQ
Why did SK Hynix register 25% with the SEC if only 2.5% can convert?
The 25% registration serves as a reserve buffer to accommodate round-trip conversions. When ADRs convert to domestic shares and disappear from US markets, this buffer allows them to be reactivated when returning to ADR form without requiring new listing procedures each time.
How did TSMC increase its ADR ratio from 2.9% to 20.5%?
TSMC increased its ADR ratio through procedures equivalent to additional offerings between 2001 and 2007, requiring approval from TSMC's board, Taiwan's Financial Supervisory Commission, and SEC registration for each conversion by major shareholders Taiwan National Development Fund and Philips.
