Koh Young-ja, 34, has sunk more than US$90,000 into Hynix Semiconductor Inc, the third-largest computer memory chipmaker. The company's US$6.5 billion debt may make her investment worthless.
Hynix stock more than doubled since Nov. 1, driven by individual punters like Koh, even as US-based Micron Technology Inc negotiates to buy its plants and other assets. The No. 2 memory chipmaker will offer as much as US$4 billion, Yonhap News reported Wednesday, citing Hynix Chief Executive Park Chong-sup.
Hynix shareholders may find themselves holding worthless scrip because the chipmaker received two multibillion-dollar bailouts in the past seven months, increasing the control of creditors over the company. Hynix will also be selling assets that accounted for 70 percent of its sales last year.
"Anyone playing Hynix equity is taking a hugely risky bet," said David Semple, who manages about US$1 billion in global investments at Van Eck Associates in New York. Micron is "only interested in the assets, not a merger, and the price will not cover the debt."
Buying the Hynix plants would enable Micron to surpass Samsung Electronics Co as the biggest maker of chips that store short-term memory on computers.
Park said at a press conference yesterday the company is studying ways to protect its shareholders, who rank behind creditors in their claims on a company's assets. Micron will probably pay for Hynix assets in stock, he said.
"If the creditor banks take all of the shares from Micron this deal won't be easy," Park said.
Investors like Koh, who bought some of her stock at nearly three times yesterday's price of 2,330 won, are concerned they will incur losses whatever the Micron offer, possibly as shares are canceled or written down, or because of dilution by a debt-for-equity swap.
Other investors are looking for the best time to exit the stock, having gained from the speculative fever driving it higher.
Korea Exchange Bank and other Hynix creditors say they aren't considering a writedown.
"Why would the creditors consider a share cancellation?" said Chung Hyung-ryang, who heads the Korea Exchange Bank's corporate risk division. The bank said yesterday it received an offer from Micron, though it declined to provide details.
Korea Exchange Bank was one of the creditors that took over Hynix's former affiliate, Hyundai Engineering & Construction Co, last year when it was unable to keep up debt repayments.
Shareholders were given one share for every six they owned.
Even if the Micron talks founder, a possibility Park yesterday put at 50 percent, Hynix shareholders already face a dilution of their holdings in June when 3.1 trillion won of debt is converted into shares equal to 36 percent of the company. The company also promised banks it would try to sell as much as 1 trillion won of new shares in return for more than 8 trillion won received in its second bailout in October.
Park said without the money from Micron, Hynix would need 1 trillion won of new money and a further round of debt restructuring to remain viable.
Whatever the outcome of the talks, some shareholders are likely to take a fall. "I believe in long-term investments and plan to hold onto the shares for now," Koh said. "Hynix's technological skills were not born in a day. Its technology is worth quite a lot to the right buyer."
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