SK Hynix ADRs Surge After Record $26.5 Billion US Offering

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1:17Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. We have SK Hynix ADRs opening for trade. They opened 14 percent above the offer price. They opened at one hundred seventy dollars. The offering was at one hundred forty nine dollars. The company raised$26.5 billion in selling American depository receipts on the NASDAQ. Let's bring in Anthony Hughes. He is our senior equity capital markets reporter here at Bloomberg News.

2:02Scarlet Fu:And Anthony, you've been monitoring this. This was a very oversubscribed offering. There was a lot of demand for it. And this opening indicates the demand has not stopped. Yes, for the size of this offering, this gain that you can see here, you know, sort of around 15 % is what you'd expect. for perhaps a deal like this where it's pretty large. You wouldn't expect maybe to go up, you know, like 50%, 100 % or something like that. But, you know, really what this confirms is that SK Hynix has been able to achieve a premium to its, you know, the price at which the stock trades in Korea, and that was part of this exercise here.

2:41This was an offering which was designed to fund the capital expenditure of the company, but it was also trying to do that in a way which was most efficient for the company and enabling the company to get a cost of capital that was more the best, the lowest they could. And, you know, basically as good as Micron's getting in the US. So, you know, obviously it's an efficient way for the company to raise money in the US. This is the way they did it. What has the company said about their need for additional capital going forward? Did they put out a message that we may come back for equity? We may access the US debt markets?

3:19Did they say anything about that? Yeah, I think if you see the interview with the chairman, he did say there was a possibility they could sell more ADRs and obviously they can raise debt in the future as well. So I think the company is going to have significant capital expenditure needs. And this is the sort of interesting thing about the market at the moment where there's a lot of interesting companies that do have heavy capital expenditure needs. And I think in the past we'd probably think they were not the best companies to invest in, but things are different these days. But obviously, they're generating a huge return on the assets they have at the moment.

3:52But I think the really interesting thing from that interview, I thought, with the chairman was that he has to balance off really maximizing profit for the shareholders. But he's also got to supply his customers with the product. And obviously, he has to expand the production of the memory chips. And doing this is something that could subtract a little bit away from shareholder returns over time. But that's a balancing act that management has to achieve. And that's a really interesting challenge for the company looking forward here.

4:20Scarlet Fu:So the market where SK Hynix has its primary listing, Seoul, is the world's best performing stock market, right? I mean, it's done incredibly well. And this is even after it basically had this moment of whiplash the last couple of weeks. You know, it's been very, very volatile. Just this week alone, I'm looking at it. The COSPI, the benchmark index, they're closed down 5 % last night. It rose 3%. So it's kind of all over the place. Is there a sense that this was kind of the, I don't want to say the top, but it was kind of a dicey time for SK Hynix to go public in the US, given that there's so much volatility in its home market?

4:59Yeah, well, I think when the stock's up 600 or 700 % in the last year, finding the right price here, it was always going to be a little bit challenging. And I think although the offering did price at a premium to the translated value of the stock in Korea, you know, it did come back 25%, 30 % ahead of this offering in the past few weeks. And that was something that I think the investors in the offering, the US investors that came in for the ADRs were pleased about. I mean, obviously, it'd be much better to have bought the stock a year ago when it was before it had gone up 600%. But, you know, the investment opportunity was laid out to them here.

5:33And, you know, the stock did come back ahead of the offering and then it priced at a premium. and now it's trading up again. So the company's trying to get a multiple that's closer to Micron, which has been an outstanding stock in the US. But whenever you see stock prices go up in a straight line like they have or at least go up very sharply over a short period of time, there's always a chance for retracement. But to your point, the Korean market has been hugely volatile. It's been very strong. Yes, one of the strongest markets in the world, but it's very volatile. So I think the interesting thing for investors is whether this stock is going to be volatile now that it's trading in the US.

6:12And so is some of that volatility in Korea going to get imported into the US?

6:16Scarlet Fu:Very well said. Okay, you keep bringing up Micron, and that's because that's the US's biggest memory chip maker. But SK Hynix has a rival at home, and that's Samsung Electronics. Does Samsung Electronics trade in any way in the US? And if not, would it consider listing in the US because SK Hynix has? Yeah, well, I think people are expecting other companies to look at ADR programs. I mean, Kioxia of Japan. Oh, right, Kiosara, right? Yeah, yeah, I've got the name right there. But, you know, I think ADR programs are not necessarily simple things for companies to roll out, and I think a lot of Asian companies have probably shied away of them from recent years.

6:53Certainly Chinese companies have not really been encouraged in either direction to do ADR programs. So, you know, this might be a little bit of a one-off and really reflective of these amazing conditions in the memory chip market. But, yeah, this has been a pretty orderly outcome so far. Real quick, do we expect the stock to trade at a premium in the U.S. versus Korea from a valuation perspective? Yeah, so I guess to Scarlett's point there, even though Samsung is a rival, really the direct comp here was Micron, And Micron does trade at a premium to SK Hynix based on forward earnings. I mean, obviously, you can value companies in different ways.

7:33But and part of the exercise here was to close that gap, at least as far as the stock trades in the US. And obviously, when the company goes to look for to raise further capital, it'll raise it in the cheapest way possible. And if stock is trading at a premium in the US versus Korea, there's obviously going to be an incentive for them to raise money in the US. And obviously, the other thing about the US is there's a lot of money in the US as well. So play that arbitrage. Yeah, that's right. But that was very much expected that there would be a premium here. And that's part of the exercise that they've been able to do that.

8:04But obviously there is a Korean discount that people talk about. That reflects the fact that there's a lot of governance concerns about the way Korean business, Korea does business a little bit differently to America. I think they're less, the Korean companies are less focused on capital returns and dividends and also just, you know, Americans are a bit more share price focused and more accounts.

8:24Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. I don't love the word retirement because I think it has negative baggage. I like the word financial independence. If you were to be financial independent, like how would you spend your time? And that's exactly what a lot of my clients talk about. And the term they'll use is a work optional lifestyle. I agree, like the next gen, millennials and below are not thinking about retirement. We're thinking about let's find something that we enjoy, that we can have financial independence. I think that's a better way to think about the end of life stage versus quote unquote retirement.

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10:41Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, let's switch gears to the aerospace business, the airlines business. We do that with George Ferguson, and he's a senior aerospace analyst at Bloomberg Intelligence. and said, George, the only thing between me and the beach is this discussion with you. So I want to get through this. George, talk to us about Delta. Earnings came out. I thought they were pretty good here.

11:17It seems like demand's holding up for these airlines. Yeah, I mean, I think that, you know, Delta United and to a lesser extent American are going to probably be the best part of the story this quarter. And I think Delta showed some resilience in that in the revenue lines. Right. And I think, you know, you have to remember, this is a pretty diversified from a revenue standpoint company. They have a maintenance business that brought in some great double digit gains. gains. They've got, they had cargo, they had loyalty that all sort of brought in gains, as well as premium. And then basic lagged a little bit, although they indicated that, you know, they've been cutting down a number of basic seats.

12:01But I think generally, this story was pretty good on the revenue front. They grew less than United and American. So I think that means they could support some of those higher fares. They were like at 1 % seat count growth. We're going to see United, I think, come in closer to six. We're going to see American around three-ish. So I think this might be the best part, again, of the revenue story for U.S. airlines as we get into this earnings season. And one of the challenges, I think, too, in growing a little slower on the capacity front is that some of their costs ballooned a little bit. But look, again, I think they made some good ground.

12:39They haven't totally compensated for higher fuel prices, but they made some good ground. I think it was a pretty decent earnings numbers. Hey, George, talk to us about just maybe the trend in the industry to maybe taking out some economy seats, putting in more business or first-class seats. How is the cabin changing within the industry these days? Yeah, I think you're just, you know, on the big full-service guys, you're seeing a lot of, I don't know what we call it, upgrading, improving, right? And remember, like that premium seat, you know, that can stretch anything from premium economy to more business seats.

13:18And, you know, I think they're finding, again, you know, they're sort of they're focusing on the well-heeled consumer. You're a retiree, you know, and your 401k accounts, I guess it's not a 401k anymore. Your investment accounts are rocking and rolling. You don't want to fly overseas. You don't want to fly to the West Coast in something that's as cramped as some of that basic economy in the back of the airplane. So those carriers are sort of pushing that upgraded seat, trying to get more money from it. And again, I think, you know, Delta has shown some success on that front. And I would expect you're going to see the same out of United and American, but to a lesser extent.

13:58But what happens to the lower end consumer? Where does that consumer go? Do I have to fly? I mean, aren't some of these airlines going out of business, these discount airlines? So we saw Spirit, you know, we saw Spirit leave the business. I think that helped. Look, I think still at the bottom end of the scale, right, that basic economy traveler, one, they're under a little more pressure economically. I think inflation is hurting them a little harder. Right. When you raise the price of gas, it hits them in the pocketbook a little further, too. right? You know, it costs them more to commute to work of their total income.

14:35And so I think that means demand is probably a little bit softer in that basic economy world than it is in the premium world. And so I think, you know, that kind of took away some of the gains we might have seen as spirit left. And again, I think, you know, you've got to bear in mind that Delta United and American are going for that basic economy travel, right? There's still a basic economy section in the back of those airplanes that, you know, provided they can sell that seat at a price that's higher than their incremental cost to deliver it, they're going to do it to that basic economy traveler, fill out those load factors and create, you know, efficiencies, which improves profitability.

15:18And so that's the challenge in this business is United, Delta, especially none of the growing again six percent seats there's probably going to be about that much in basic economy growth uh they do that for long enough and they kind of make up pretty quickly for spirit airlines leaving the business so there's still a lot of competition i think in that basic economy we'll see as the earning season goes on all right folks george in addition to covering the airlines also covers the aerospace companies think boeing and all i know is every summer right around this time he gets to go to these lavish trips to europe one year it's london the next Next year it's Paris.

15:54They alternate. And there are these air shows. I have no idea what happens at these air shows, but George tells us he must go. So we send them. George, where are you going this summer? I see the week of July 20th might be penciled in. It is. So July 20th, Farnborough Air Show in the, you know, the burbs around London. Of course. And so, you know, we go there to sort of keep a pulse on demand for airplanes. Usually there's a fair amount of orders placed at the show for airplanes, but, you know, by airlines around the world. This year may be a little bit muted, you know, sort of the on again, off again of the sort of Iran fight has fuel prices sort of bouncing all over the place.

16:39So we'll see how much airlines want to get in the back of very large queues for airplane. Don't work too hard over there. I heard the rosé flows.

16:47Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. or if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest.

17:24Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. So there's a lot of noise about AI, but time's too tight for more promises.

18:05So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. Ask yourself, what are your best people spending their time on right now? Expense reports? Receipt chasing? Month-end close that takes weeks? You become what you spend on. And that's not what you're building toward.

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19:03Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Great Bloomberg Opinion column out here today. Meta ushers in the ear of the K-shaped company. A new class divide is emerging in big tech between those at the top of the artificial intelligence hierarchy and everyone else, with the former receiving high salaries and resources and the latter being viewed as disposable. Beth Coet joins us here. She is a Bloomberg Opinion columnist, author of this piece.

19:41Beth, what's going on out there with some of these big tech companies? It seems like we are. If you're in AI, they love you.

19:48Scarlet Fu:Yeah. I mean, it's really interesting because I think tech has long thought of itself as this egalitarian utopia. And that, you know, that's a much more complicated story. And we're seeing that play out again here, where I really think there is an AI hierarchy. There's the AI elite, and then there's everybody else. And even if you're doing things with AI, even if you're using AI tools, unless you are at the very top of this hierarchy, you are at risk. Unless you're the kind of person who is recruited to work at, say, a meta and in charge of developing the AI capabilities, everyone else just feels like they're, you know, hired hands and disposable increasingly.

20:26Scarlet Fu:What is happening at meta that is really exacerbating this divide? So we really are seeing this here. So there's, you know, executives have thrown massive payback, like nine figure salaries at developers, researchers, engineers who are really at the top of this field. Everybody else has faced the prospect of mass layoffs. I mean, we're talking, you know, 10 percent of the company multiple times over, right? We've seen multiple rounds of mass layoffs here. Workers have been surveyed in order to basically train their AI replacements. They've been drafted onto teams that are described as sort of soulless gulags.

21:06Scarlet Fu:So it's, you know, this company that once was really one of the most coveted employers in Silicon Valley for a lot of people has now become, you know, it's people are sort of hoping to get laid off. They want out. What are the companies saying, if anything, how are they responding? Well, what's really interesting here is Meta has walked some of this back. They've acknowledged recently that the way some of their various initiatives were rolled out was atrocious. They've said the environment is brutal. And I don't think this is because all of a sudden they've discovered empathy. I think this is because it wasn't working, right?

21:41Scarlet Fu:Like they are not winning the AI race. And I mean, that's not a big surprise that if you treat employees this way, they're not going to perform for you. So I think they've kind of realized that a little bit. They know what the problem is. They know what the problem is. How are they solving it? Because there is a talent war. You just talked about these nine figure salaries for folks who are at the top of the AI game. But at some point, you also need everyone else to kind of continue to keep the ship moving in the right direction. Yeah. So it's interesting. They've said things like we're not going to have any more mass layoffs this year, better micro kitchens, you know, So smaller teams, they were having in some cases where one manager would have 50 reports.