Extreme SK Hynix Stock Swings Add Wild Card to $28 Billion Deal

SK Hynix Inc.’s New York listing, currently on track to be the largest ever by a foreign company in the US, is facing an unusual source of uncertainty for a major offering: the wildest swings seen in global chip stocks in years.

The memory chipmaker is taking investor orders for a deal that in late June was initially expected to fetch about $29 billion. But a renewed selloff in technology stocks has sent SK Hynix shares in South Korea tumbling, leaving the reference size of the offering smaller. The stock in Seoul is down 17% this month, including about 9% from the July 3 close that was indicated as reference in its latest filing with the US Securities and Exchange Commission.

The volatility is casting a cloud over the deal’s value and adding a wrinkle to the decision making for investors. The company will set the price of the American depositary receipts based on the last reported trading price of its shares in the early afternoon of July 9 in New York, terms of the deal seen by Bloomberg News show. SK Hynix flagged that prevailing market conditions and other factors will also impact the final decision, though it didn’t lay out how exactly.

The volatility “may influence short-term investor sentiment or the timing of execution, but I would be surprised if it materially disrupted the transaction itself,” said Jung In Yun, chief executive officer at Fibonacci Asset Management Global. “Unless market conditions deteriorate significantly from here, the pricing impact should be manageable.”

Seoul’s notorious volatility hasn’t abated as the deal progressed. On Tuesday, an 8% slump in South Korea’s Kospi index triggered a temporary trading halt.

Though SK Hynix shares fell more than 6%, they remain up more than 700% over the past year and there’s no sign that demand for the ADRs is affected. Investors have expressed interest for more SK Hynix American depositary receipts than those on offer, deal terms show.

SK Hynix has attracted indications of interest from Baillie Gifford, Coatue Management and Situational Awareness Partners for as much as $7 billion worth of ADRs in the offering. That suggests strong institutional demand despite the selloff, said Sanghyun Park, founder of Clepsydra Capital, a firm specializing in special-situations analysis.

“The syndicate might price a bit more conservatively to ensure a strong Nasdaq debut,” Park said.

Part of the volatility is also a result of the rapid growth in leveraged exchange-traded products tied to SK Hynix, said Roy Lim, equity sales trader at NH Investment & Securities. The effects “should be distinguished from Hynix’s underlying fundamentals,” Lim said.

Read More: The Leveraged AI Bet That’s Whipsawing Markets Around the World (1)

Volatility aside, US investors would still want to get a slice of the deal for its rarity, said Nori Chiou, investment director at White Oak Capital Partners.

“From a US investor perspective, Korean equities, particularly memory names, remain relatively scarce and difficult to access,” Chiou said. “This scarcity value should help support demand.”