They speak English now in the boardroom at Hynix Semiconductor Inc. It's a South Korean company, but let's not sweat the small stuff. They speak English because Hynix has made itself a good company -- especially since Salomon Smith Barney Inc (SSB) organized a bailout a couple of months ago.
Hynix has outside directors and a new chairman, Park Chong-sup, who likes to compare Hynix with International Business Machines Corp and Compaq Computer Corp. Park is a visionary, you see, and Hynix a global competitor.
There's just one other thing that bears mentioning. It's that Hynix is a dreadful company -- a nonsensical entity with debts of 5.6 trillion won (US$4.37 billion). Hynix should not be allowed to survive, and the Korean government is wrong, wrong, wrong for keeping it going by way of bailouts engineered through the state-owned banks that hold most of the company's debt.
Now why are you telling me you don't understand? Why are you saying you can't tell the ACs from the DCs anymore when you look at cases such as Hynix? To this I can suggest only that you may actually believe investment banks such as SSB when they arrive in Asia like missionaries preaching the gospel of free markets. It may also be that you have not considered the fees SSB is reaping from its effort to revive a chip operation that would go under in a trice were market forces to have their way.
``The Hynix saga has come to represent everything that is wrong with South Korea at the moment,'' an American editorialist wrote not long ago
``Everything'' is too strong, but I'll go along with much. And included in the much is surely the presence of hypocritical Westerners who befog both the problems and the solutions with a dense mist of useless ideology and -- far from least -- museum-quality conflicts of interest.
Hynix is many things at once. It is the world's third-largest chip producer, and it is a badly combined leftover from units of two of the old chaebol conglomerates -- Hyundai Electronics and LG Semiconductor -- that can't take advantage of its size. It accounts for almost 4 percent of Korea's export revenue and employs 15,000 Koreans, but it also has immense exposure to a market that has seen the price of DRAMs, Hynix's principal product, drop from US$8 a year ago to 95 cents last month -- less than the cost of production.
What should happen to Hynix? It should probably go under and it probably won't -- not yet, anyway. But before we get to that, let me lay a little chronology on you -- an executive summary of recent events.
In May the government announced a new, 5.6 trillion won restructuring at Hynix, contingent upon a 1.3 trillion won equity issue. This was a disgrace, you probably read -- evidence that President Kim Dae Jung's administration is still intent on rescuing the chaebol, which just have to go.
In June, SSB completed the equity offering at a 24 percent discount to the share price in Seoul the day of the issue. This was a triumph, you probably read -- the largest corporate restructuring in Korean history, a recapitalization to be celebrated.
July 19: A month after the issue, Hynix stuns the market with a second-quarter loss of 1.3 trillion won. The stock price is now off by two-thirds since the SSB issue. It begins to look as if hedge funds were the only ones who bought it -- excluding whatever portion SSB may have put into its own book.
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