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Sat, Aug 25, 2001 - Page 21 News List

Hynix shares tumble as creditors prepare to meet

HOUSE OF CARDS With the price of memory below production costs, the South Korean chipmaker will likely be forced to accept a debt for equity swap, further eroding investors' stakes


Hynix Semiconductor Inc, the No. 3 computer memory chipmaker, tumbled for a second day on investors' concern they will have to surrender part of their stake in the company to creditors.

Representatives from 17 creditor banks are meeting at Korea Exchange Bank, which is owed the most money by the company. They may discuss how to swap some of Hynix's debt, estimated at 7.2 trillion won (US$5.6 billion) at the end of June, for a stake in the company, which would dilute investors' stakes.

Hynix, which has a market value of 1.27 trillion won, is struggling to meet debt repayments and invest in the equipment it needs to remain competitive because the price of its main products has fallen to less than it costs to make them.

"Simply swapping debt for equity will not provide any additional cash for investment," said Ben Akrigg, who helps manage about US$2.5 billion in Asian stocks outside of Japan at Morley Fund Management. "A debt-for-equity swap alone will not ensure its viability." Hynix's shares fell 10.4 percent to 1,255 won, making the stock the biggest drag on the benchmark Kospi for a second day.

Hynix fell 14 percent yesterday. The stock was the most actively traded by value and volume.

Reports of a debt-for-equity swap led Standard & Poor's to cut Hynix's credit rating two notches to "CCC+" -- seven notches below investment grade.

The rating company said that should any financial support package include a debt-for-equity swap or "any other terms that are detrimental to ... creditors," the ratings on Hynix will be revised to "SD," or selective default.

The Korean government, which controls all of Hynix's major creditors, faces several conflicting demands. The banks don't want to increase their exposure, while the government doesn't want to shut a company that employs 15,000 people and accounts for 4 percent of Korea's exports.

Last month Korea Exchange Bank said first-half profit came to 65.6 billion won, a third less than its earlier estimate, after it set aside more money against possible bad loans at Hynix and other former Hyundai Group companies.

Today's meeting comes little more than a month after lenders rescheduled more than US$4 billion of debt and two months after Hynix sold US$1.25 billion of stock to global investors.

"The survival of the company is in question" without the debt-for-equity swap, said Anthony Mei, an assistant portfolio manager at Phoenix Research Ltd, a hedge fund with US$60 million invested in Asia. "They should make sure that the company does it in a way that does not rip off the existing shareholders to the benefit of creditors." Hynix agreed not to sell more shares or bonds convertible into shares for 180 days after the US$1.25 billion share sale, according to the offer document.

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