SK hynix's Nasdaq listing to flood Korea's forex market with $26.5b

SK hynix's successful Nasdaq listing is set to unleash a currency-swap-scale dollar windfall on South Korea's foreign exchange market. Analysts say the inflow will help supply dollars to a market that has been under pressure from a broadly stronger greenback and rising overseas investment by Korean retail investors.

SK hynix raised $26.5 billion through the issuance of American depositary receipts on Friday, according to industry sources. The proceeds are scheduled to be deposited with the company on Tuesday, when the public offering process is completed.

Because SK hynix plans to deploy most of the funds on domestic projects — including its semiconductor cluster in Yongin, the P&T7 advanced packaging factory in Cheongju, and the procurement of EUV lithography equipment — the dollar proceeds will need to be converted into won. That means a large-scale dollar supply injection into the Korean foreign exchange market.

"The ADR proceeds will be used for the investments disclosed in the securities registration statement, and we plan to convert some of the funds into won," an SK hynix official said. "The scale and timing of the conversion have not yet been finalized."

Market participants expect the massive dollar inflow to help cool the won's prolonged weakness. In the foreign exchange market, forward-selling of dollars had already begun before the ADR issuance was confirmed, pulling the won-dollar rate down from around 1,560 won to the 1,400-won range during trading.

The scale of the incoming dollars has drawn comparisons to a currency swap. During the COVID-19 panic of 2020, when financial markets swung wildly, the stabilizing force was a $60 billion currency swap arrangement between the Bank of Korea and the US Federal Reserve.

That $60 billion swap functioned as a ceiling rather than a fixed disbursement — the actual dollars supplied to the domestic market through the facility totaled $19.87 billion. The current SK hynix inflow of $26.5 billion exceeds that figure in a single transaction.

SK hynix's fundraising also equals roughly 73 percent of South Korea's trade surplus in June, which stood at approximately $36.2 billion.

Unlike many exporters that retain dollar earnings in foreign currency for further overseas investment, SK hynix's listing proceeds are earmarked for domestic use, meaning an actual currency conversion will take place.

The sum is comparable to the daily average spot won-dollar trading volume in the first quarter of this year, which the Bank of Korea put at $33.28 billion, and is nearly double the roughly $13.6 billion in dollars that monetary authorities net-sold in the foreign exchange market during the same period to defend the exchange rate.

SK hynix's planned domestic investment commitments alone already exceed the amount raised through the ADR offering.

Securities analysts project the company will post operating profit of around 300 trillion won this year, and expect its capacity for AI semiconductor investment to grow further as cash from operations is added on top of the listing proceeds. The actual conversion of the ADR proceeds is expected to begin in the second half of July and continue through August and September. The company is widely expected to sell dollars in tranches timed to its investment schedule, in order to minimize market disruption.