Eight state banks reached a consensus late last night to approve a NT$3 billion (US$87.6 million) loan to money-losing computer memory chipmaker ProMOS Technologies Inc (茂德科技), which is looking for funds to repay US$330 million in convertible bonds later this week. The loan still needs to be approved by each bank’s board.
The loan is less than the NT$5 billion ProMOS had applied for, as some banks fear the loan could become a bad debt if ProMOS failed despite their help.
“The eight lenders with government stakes agreed last night to grant ProMOS NT$3 billion in a syndicated loan,” the banks said in a brief statement.
The approval came after banks led by the Bank of Taiwan (臺灣銀行) had been engaged in discussions all day to iron out disagreement between the banks and ProMOS over the necessity of the loan and its terms. Bank of Taiwan chairwoman Susan Chang (張秀蓮) had said earlier yesterday that “ProMOS will not be able to meet its [payment] deadline if the banks fail to reach a conclusion on the matter today.”
The late-night breakthrough did help ProMOS avoid the risk of imminent insolvency if it defaults on the five-year bonds next Tuesday, which would cause a ripple effect of defaults on all its bank loans, as creditors could demand that the Hsinchu-based firm repay the debts in the short term.
Holders of ProMOS’ convertible bonds will today begin to place a put option on the debt, which would allow them to sell the bonds back to the chipmaker.
“We will use the bank loans to repay ProMOS bondholders,” ProMOS spokesman Ben Tseng (曾邦助) said last night.
Tseng said Citibank would represent ProMOS in negotiations with the bondholders to determine a proper price for debt redemption. He declined to reveal the size of the discount on the bonds the company plans to propose to its investors.
“The only reason [for the approval] is that credit banks hope to take more debts back once ProMOS’ operations get back on track, helped by the government’s bailout plan,” Kenneth Lee (李克揚), a semiconductor analyst with Primasia Securities Co, told the Taipei Times yesterday.
In other words, ProMOS could be part of the government’s greater efforts to rescue the nation’s DRAM industry, Lee said.
In the severest industrial slump since last year, ProMOS lost NT$22.46 billion in the first three quarters of last year and NT$7.32 billion in 2007 as chip prices collapsed as a result of a supply glut.
ProMOS had borrowed NT$63.7 billion in syndicated loans from 2003 to 2007, mostly from the nation’s state-controlled banks, including the Bank of Taiwan and Taiwan Cooperative Bank (合作金庫銀行), the chipmaker’s filings to the Taiwan Stock Exchange show.
As of the end of the third quarter of last year, ProMOS had an aggregate of NT$89.52 billion in debts, including NT$42.66 billion in long-term debt.
Minister of Economic Affairs Yiin Chii-ming (尹啟銘) said on Friday that he expected banks to approve the loan because ProMOS had provided enough collateral for the loan, despite concerns that it might waste taxpayers’ money.
President Ma Ying-jeou (馬英九) said earlier the government had to rescue the DRAM industry because it represents an important industry employing many people in Taiwan. Democratic Progressive Party Chairwoman Tsai Ing-wen (蔡英文), however, has cautioned against attempts to rescue ProMOS.