Hynix Semiconductor Inc creditors won't participate in the chipmaker's proposed US$390 million share sale, potentially leaving the company short of funds to acquire new technology to stay in business.
"There is no plan for creditors to make up for any of the 500 billion won (US$390 million) of shares that haven't been sold," said Chung Hyung-ryang, a top official at Korea Exchange Bank. The sale is part of a proposed 5.2 trillion won bailout, the company's second in three months.
Under the rescue package, the third-biggest computer memory chipmaker also wants banks to swap 3 trillion won of debt for equity and for investment trusts to roll over debt payments.
Should investors balk at the rights offer, or the bailout fails, Hynix would be left with few options to stay alive in the US$30 billion chip industry.
"If they can't make it on their own, they should go under," said Mark Mobius, managing director at Templeton Asset Management Ltd. Mobius said he sold his Hynix stake prior to a US$1.25 billion Hynix share sale in June, part of a US$4 billion bailout. Salomon Smith Barney Inc, the company's financial adviser, arranged both rescue packages.
Banks may also be reluctant to extend their exposure to Hynix, which already stands at 6.4 trillion won, according to an estimate by Tong Yang Securities Co Another bailout would force lenders to set aside more money as provisions, leaving some unable to meet earnings targets, said Ryu Jae-cheol, an analyst at the brokerage.
Hynix shares plummeted by their daily 15 percent limit to 795 won, about half the price of a package of local cigarettes, before rising to 865 won in recent trading. The stock, down 50 percent in a week, is worth a fraction of the 36,000 won it traded at three years ago. Some US$330 million Hynix shares changed hands today, making it Asia's most active stock by value.
Though banks are likely to approve the Hynix rescue package tomorrow, "there is nobody except its creditors" who would buy new shares, said Lee Jae Hyun, who manages about 1 trillion won at Daehan Investment Trust Management Co. "If I were one of the bank heads, I'd just cut my losses and get out. Putting more money into this company just doesn't make any sense."
Hynix must repay most of its 7.2 trillion won of debt this year even as sales of its main product are forecast to fall 40 percent. It lost US$1.6 billion won in the first half, leaving it unable to afford the billions of dollars memory chipmakers spend each year to keep their factories running with the latest technology.
"They need more money to upgrade production lines to increase efficiencies and stay alive," said Hahn Soongho, an analyst at HSBC Securities. "Its competitors are already way ahead. Hynix is burning cash at a much faster rate."
KEB and other lenders are considering a plan under which they would roll over some 4.7 trillion won of the company's debt or exchange it for shares. Under the plan, the company would sell 500 billion won of new stock to shareholders and swap 1 trillion won debt for stock. Banks would swap 2 trillion won more debt for bonds convertible for Hynix stock.
Granted, some investors may be tempted by the option of buying more Hynix shares on a wager that the company can weather falling chip prices with a rescue package that cuts its debt and gives it more cash.
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