Elpida Memory Inc, Japan’s biggest memory-chip maker, said it would buy back ¥50 billion (US$542 million) of convertible bonds after its stock stayed below the minimum conversion price stipulated by the terms of the sale.
Elpida fell 8.9 percent to close at ¥420 on the Tokyo Stock Exchange yesterday, marking the 20th straight session shares traded below the ¥509 minimum price and triggering the repurchase requirement. The company would buy back the bonds in cash on Jan. 9, it said in a statement.
The redemption would divert funds the Tokyo-based company could invest in chip plants to compete with Samsung Electronics Co and Hynix Semiconductor Inc. Elpida had planned to split the money it raised last month between upgrades at its manufacturing facilities in Hiroshima and spending at its venture with Taiwan’s Powerchip Semiconductor Corp (力晶半導體).
“The money was originally intended for capital spending, so the question now is where Elpida will find replacement funds,” said Yuichi Ishida, an analyst at Mizuho Investors Securities Co in Tokyo, who has a “neutral” rating on the company.
“The repurchase would remove the immediate risk of share-value dilution,” Ishida said.
The buy back would not pose a problem for Elpida’s finances as the company has ¥200 billion in cash deposits, spokeswoman Kumiko Higuchi said yesterday.
Redemption of the convertible bonds may also force Elpida to repay more than ¥66 billion of loans because of agreements tied to the company’s net worth, UBS AG wrote in a research report on Nov. 5.
The company may have to postpone spending on factories and equipment should the banks force loan repayment, the UBS report said.
Elpida had ¥109 billion of bank loans at the end of September and arranged a credit facility for an additional ¥110 billion in October, Higuchi said last month.
The covenant on the facility means that the banks have the right to demand repayment if Elpida’s net assets as of March fall below 75 percent of the previous year’s level, she said.
Elpida last month reported its fourth straight quarterly loss as prices of the benchmark dynamic random access memory, or DRAM, have tumbled 68 percent to a record low this year. The net loss was ¥31.9 billion in the three months ended Sept. 30, compared with a ¥3.27 billion profit a year earlier, Elpida said.