Creditor banks for ProMOS Technologies Inc (茂德科技) plan to approve an interest rate cut on a syndicated loan later this month, granting the troubled computer memory chipmaker breathing space during which it can try to find a strategic partner, bank executives said yesterday.
The Hsinchu-based company owes 26 state-run and private banks NT$54.8 billion (US$1.79 billion) for a syndicated loan that would have to be classified as non-performing this month if both sides fail to work out a solution.
To prevent that eventuality, the creditor banks agreed on Friday to cut the interest rate from 3.5 percent to 0.1 percent, easing the financial burden on ProMOS Taiwan Cooperative Bank (合作金庫) chairman Liu Teng-cheng (劉燈城), said.
The decision must secure board approval from the firm’s respective creditor lenders, said Liu, whose bank has already given its go-ahead.
A default by ProMOS would add about 0.26 percentage points to the nation’s bad debt ratio, which stood at 0.47 percent at the end of August, the Financial Supervisory Commission said last week.
“While ProMOS still needs a heavyweight investor to keep the company alive, we think it is better to separate the issue from the interest rate cut,” Liu said by telephone.
Under the rate cut arrangement, ProMOS is required to pay NT$4.48 million a month in interest, a major reduction from the original NT$114.8 million, according to its filing with the Taiwan Stock Exchange.
The chipmaker has failed to honor interest payments since July and has been suspended from trading shares in the over-the-counter GRETAI Securities Market, after it failed to disclose its financial results for the first half of the year as required of all listed firms.
ProMOS reported a loss of NT$4.26 billion for the first quarter, company data showed, adding it had accumulated NT$69.85 billion in debt as of March 31, while owning NT$74.48 billion in assets.
The DRAM chipmaker passed a recapitalization plan in August, slashing its capital by 80 percent from NT$25.43 billion to NT$3.82 billion.
The banking group will now drop the debt conversion plan proposed by ProMOS to convert its bank debts into shares, making the lenders its biggest shareholders, Liu said.
The debt conversion scheme would require special legal accommodations because financial institutions are currently banned from holding more than a 5 percent stake in non-financial firms, Liu said.
While seeking to rescue ProMOS loans, the lenders are braced for a potential default.
State-run First Commercial Bank (第一銀行), which lent ProMOS NT$1.8 billion, had set aside full provision as of last month, bank executive vice president Lin Hann-chyi (林漢奇) said.
“The interest rate cut is intended to avoid an immediate default,” Lin said by telephone. “A real cure lies in the introduction of a strategic partner. The creditor banks just do not want to scare away interested parties.”
Taishin International Bank (台新銀行), the flagship unit of Taishin Financial Holding Co (台新金控), increased related provisions to 100 percent of its NT$1.1 billion loan to ProMOS last month.
Banks are required to list lending as “bad” if borrowers fail to honor debt payments for three consecutive months.
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