Hynix Semiconductor Inc fell to a record low close after Societe Generale SA and nine other foreign banks demanded it repay a US$46 million loan nine months early as concern mounts the No. 3 memory chipmaker will default.
The banks say Hynix's Aug. 1 separation from the Hyundai Group breached a condition of the loan that its parent remain the major shareholder. Eric Berthelemy, head of Societe Generale's Seoul branch, said the banks may declare Hynix to be in default.
While Hynix, with US$800 million cash in hand, could pay the banks, the claim is the latest sign the company's creditors are doubtful it can survive. Hynix, which owes an estimated 7.2 trillion won (US$5.6 billion) of debt, is losing money as the price of its main product has fallen to less than it costs to make.
"Foreign creditors are concerned about Hynix's cashflow," said Lee Hong Jae, who manages 700 billion won at Korea Investment Trust Management. "They are concerned that if the company goes into court receivership they won't get their money."
Hynix held negotiations with creditors last week to secure funds to meet debt repayments and invest in new equipment, even as it lost 2.1 trillion won from January through June.
Proposals to help the company included a debt-for-equity swap, news of which sent its shares 25 percent lower on Thursday and Friday and saw Standard & Poor's cut its credit rating two notches to "CCC+" -- and warn of a possible further downgrade to "selective default." The company denied the banks' claim, arguing in a statement sent by electronic mail that they were using the clause as a pretext "to obtain payment of their loans in priority to our other creditors." It said it had repeatedly urged SG to reconsider its request for repayment.
Hynix spokesman Kang In-young said the US$46 million is the balance owing on a US$150 million loan from the nine banks that is due in May next year. None of the remaining US$1.4 billion the company owes in loans and bonds to overseas creditors carries a similar condition.
The banks had given the company until yesterday to repay the loan, said Chung Hyung-ryang, the head of corporate credit risk assessment at Korea Exchange Bank, Hynix's largest creditor.
"At this point it probably doesn't pose that big a risk as the company can repay," Lee said of the early repayment demand. "Whether they will is another matter."
The banks, including JP Morgan Chase & Co and HSBC Holdings Plc, say Hynix, the company breached terms of their loan that stipulated Hynix's major shareholder had to be the Hyundai Group. Hynix, formally Hyundai Electronics Industries Co, was disaffiliated from the Hyundai Group on Aug. 1.
The company will meet its overseas creditors today, KEB said.
SG's Berthelemy declined to say when they might meet.
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