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Macronix taps debt market as sale plan fails

Macronix International Co (旺宏電子), Taiwan's biggest maker of flash-memory chips, said it will borrow NT$15 billion (US$433 million) to expand in the first half after a plan to sell new shares overseas faltered.

Macronix will sell NT$3 billion of bonds and draw the rest as loans, Paul Yeh, Macronix's chief financial officer, said in an interview. The company received letters of credit guaranteeing the sum from a consortium of Taiwan lenders led by the Bank of Communications, he said.

Shares in Macronix fell to a 12-month low of NT$19.6 on Friday, scuttling expectations a rebound in the stock in the second half would help the company raise as much as US$600 million selling 250 million new shares. Without a premium, the sale would fetch US$142 million.

"The current share price is too low for equity fund raising," Yeh said.

Plans of Taiwan chipmakers to raise money in equity markets have been thwarted by a slump in chip demand that's cut global sales by more than half this year, according to analysts. Nanya Technology Corp (南亞科技) said last week it may delay an overseas share sale after the attack in the US hurt investor confidence.

"The problem with small market-cap companies trying to raise funds through share sales is that it really dilutes the shareholding," said Keon Han, an analyst with Bear Stearns Asia Ltd. "Given Macronix's current share price, it would dilute the shareholding too much if they tried to raise the amount intended from a sale of new equities."

While Macronix plans to attempt an overseas share sale before the end of this year, fund managers said the company may not need those funds after raising the loan.

"Macronix's plan to sell American depositary receipts in the next quarter may have some difficulty," said Michael Yeh, who helps manage NT$800 million for United Securities Investment Trust Corp (聯合投信). "The capital Macronix will have on hand should be enough." Macronix expects to draw the loans after filing for permission with Taiwan's Securities and Exchange Commission.

The company plans to expand its third chip plant, which will make 300mm silicon wafers. These silicon sheets more than double the chips yielded from the 200mm wafers more commonly made today. Macronix said it will use half of the money to complete the factory structure and the rest to buy equipment.

That would be enough to start trial production in the new factory but would fall short of bringing the plant up to full capacity, analysts said.

"To complete the entire plant would require another round of fund raising," said Han. "You really wonder if they need to be on their original schedule for expansion."

Macronix, one of fewer than 10 chipmakers worldwide that are building 300mm plants, hopes the new facility will help to cut production costs by as much as 30 percent.

Still, the company said that about a third of its production capacity is idle, and Bear Stearns's Han said he expects Macronix to cut capacity use during the rest of this year.
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