What are American depositary shares (ADSs) and why is SK hynix using them for its US listing?

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Understanding American Depositary Shares (ADSs) and SK hynix's Listing Strategy

American Depositary Shares (ADSs) are a mechanism that allows foreign companies to have their shares traded on United States public stock exchanges. SK hynix is utilising ADSs for its US listing to facilitate the trading of its securities in the American market, thereby broadening its investor base and capital access. This method enables US investors to purchase "slices of foreign companies" through a familiar trading framework.
The Structure and Function of ADSs

ADSs are essentially certificates issued by a U.S. depositary bank, representing a specified number of ordinary shares of a foreign company. These depositary banks hold the underlying foreign shares in custody. The ADSs themselves are then traded on U.S. exchanges, such as the Nasdaq, as if they were domestic stocks. This structure typically handles the distribution of dividends and voting rights to ADS holders, simplifying the process for American investors by allowing them to transact in U.S. dollars and under U.S. market regulations.
SK hynix's Specific Offering Details

In its recent listing, SK hynix set pricing for 177.9 million depositary shares, with each ADS representing one-tenth of a standard SK hynix share. The initial public offering (IPO) price was established at US$149.00 per ADS, a pricing that reflects significant investor interest, with the offering being oversubscribed more than seven times. This offering aimed to raise US$26.5 billion, positioning it as one of the world's largest stock sales.
Rationale for Using ADSs in US Listings

Foreign companies, including SK hynix, frequently opt for ADSs to overcome the complexities associated with cross-border securities issuance and trading. By listing through ADSs, companies can reduce the barriers to entry for U.S. investors, offering them a more accessible route to invest in international firms. This approach allows these companies to tap into the deep liquidity and established infrastructure of the U.S. capital markets, as demonstrated by SK hynix's substantial fundraising through its Nasdaq debut.

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What are American depositary shares (ADSs) and why is SK hynix using them for its US listing?

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