Hynix Semiconductor Inc investors, who bought US$1.25 billion shares in the unprofitable chipmaker last month, are seeing their faith turn to frustration.
Hynix shares tumbled 10 percent to a record low after the company said it had a US$976 million second-quarter loss, bringing declines since the June 15 stock sale to more than 60 percent.
The third-largest computer memory-chip maker sold the shares to help win approval from creditors to extend more than US$4 billion of debt it couldn't repay. Demand for its chips, which now cost more to make than to buy, is unlikely to recover this quarter, said Chief Executive Park Chong Sup.
Park told analysts on a conference call the collapse of Hynix shares since the sale was "very regrettable." Salomon Smith Barney Inc, which managed the sale, declined to comment.
"Some investors are likely to view with skepticism the next big deal Salomon underwrites," said Jin-Yan Tiong, investment director at Rothschild Asset Management (Singapore) Ltd, which bought some of the shares. "No-one expected such a large volume of selling in the first few days and then beyond." The company's shares fell 23 percent in Korea in the three days after the sale. About 105 million shares changed hands on June 18, the first trading day, 60 percent more than the three-month average.
Hynix sold the stock, in the form of global depositary receipts, at a 24 percent discount to the Korean shares. Those shares fell 175 won to 1,515 won today, because of the bigger-than-expected loss. The stock traded at 4,100 won in June when the company sold shares overseas, "This is a shocking loss," said Kim Young Joon, who manages US$383 million in assets at Samsung Investment Trust Management Co in Seoul. "This is a company investors have already given up on and that has a slim chance of surviving." Hynix's loss was 60 percent larger than Kim had expected.
The Hynix transaction enabled Salomon to displace Goldman Sachs Group Inc as the leading manager of share sales in Asia outside Japan in the first half of the year. It managed three sales, totaling US$1.55 billion. Hynix paid about US$49 million in fees.
In a research report dated May 15, Salomon said it expected chip prices to rise between July and September and into next year.
Chip prices tumbled more than two thirds since the beginning of the year and lost about half of their value since the report, which was distributed to investors.
"Investment bankers get paid to paint the company in the best possible light," said Devan Kaloo, who helps manage US$4 billion in Asian equities at Aberdeen Asset Management Asia Ltd in Singapore. "It's wise to take what they say with a pinch of salt." Hynix said in share sale documents dated May 18 that it had "experienced severe pricing pressure" on the DRAMs which accounted for about 82 percent of its chip sales in 2000. Any further decline in prices would reduce profits, it said.
Hynix has more than 11 trillion won of debt, much incurred when it purchased rival LG Semicon Co two years ago, an acquisition it paid for using short-term financing. Since then, prices for its main 64Mb DRAM chips have fallen by about 90 percent to US$0.80, below production costs.
Hynix is taking steps to cut costs. The company on Wednesday announced plans to shut a US memory chip plant that makes half its main computer chips as prices slump to record lows. It will close a Eugene, Oregon factory that makes 64Mb DRAMs for six months, to upgrade equipment.
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