Lee Yoon-soo, President of Korea Securities Depository (KSD), clarified on May 22 that SK Hynix's American Depositary Receipt (ADR) conversion limit is 2.5%, not 25% as widely misunderstood. The confusion stems from an SEC fee calculation estimate that some mistook for the actual conversion cap. Lee explained that SK Hynix specified a custody limit with the U.S. Securities and Exchange Commission at 10 times the ADR issuance volume, confirming the 2.5% cap on converting domestic shares to ADRs. The ADR conversion mechanism allows foreign investors to trade Korean stocks on U.S. exchanges, but conversion volumes are subject to issuer-determined limits.
SK Hynix Sets 2.5% ADR Conversion Cap, Not 25%
Lee stated in an interview with Seoul Economic Daily that the 25% figure represents an estimated amount submitted to the SEC for fee calculation purposes, not the actual conversion limit. "The conversion limit from domestic shares to ADRs is 2.5%, which is the issuance cap determined by SK Hynix," Lee said. He emphasized that expanding this limit is SK Hynix's decision as the issuer, not a determination for infrastructure institutions like KSD or lead underwriter Citibank. The 2.5% cap refers to the current listed ADR volume as a percentage of total SK Hynix shares.
KSD President Sees No Conversion Demand Due to 30% Price Premium
Lee predicted that actual ADR conversions will remain limited even if new share registration occurs. Under the 2.5% cap, reconversion from domestic shares to ADRs can only happen when existing U.S.-listed ADRs convert back to domestic shares, creating available capacity. However, Lee noted this is unlikely due to pricing dynamics. "The ADR premium is so high that I expect no conversion demand for the time being," he said. The price gap between SK Hynix domestic shares and ADRs has reached approximately 30%.
Market Criticism Over New Share Registration Timing Addressed
Some market participants have attributed the 30% price gap between SK Hynix domestic shares and ADRs to KSD's actions. The criticism centers on KSD's May 29 new share registration timing, which critics claim blocked conversion of domestic shares to ADRs. Lee's clarification addresses these concerns by explaining the structural limits on ADR conversion set by the issuer, separate from registration timing.
FAQ
What is SK Hynix's actual ADR conversion limit?
SK Hynix's ADR conversion limit is 2.5% of total shares, as confirmed by Korea Securities Depository President Lee Yoon-soo on May 22. The widely circulated 25% figure was an SEC fee calculation estimate, not the conversion cap.
Why is there a 30% price gap between SK Hynix domestic shares and ADRs?
The approximately 30% premium on SK Hynix ADRs reflects limited supply under the 2.5% conversion cap and strong demand from U.S. investors. Lee Yoon-soo stated this price gap eliminates incentives for ADR holders to convert back to domestic shares, preventing the creation of new conversion capacity.
