Hynix Semiconductor Inc boss Park Chong-sup and his advisers Salomon Smith Barney Inc are visiting the company's local creditors trying to persuade them to roll the dice one more time.
Should they not back the company's latest multi-billion dollar bailout, its second in three months, and decide to liquidate it, Park is telling them they may sell the company for 6.5 trillion won (US$5 billion), almost half its debt, if they can find buyers. That's a big "if," according to presentations made to creditors outlining the company's finances and outlook.
After agreeing to extend repayment on more than US$4 billion of debt in June, creditors may have little choice but to agree to its latest request for help given there would be few buyers of its assets if broken up. This time Hynix wants about US$5.4 billion in debt extensions, write-offs in exchange for equity and new loans.
Shareholders are also being asked to buy more stock.
"If you owe the bank a million bucks and you're in negative equity you're in trouble," said Ian Beattie, who helps manage US$2.5 billion globally for New Star Asset Management in London.
"When you owe them as much as Hynix does, they're in trouble." Hynix, which owes interest bearing debt about seven times its market value, wants shareholders to buy one trillion won of new shares, creditors to buy three trillion won of bonds convertible into its stock and to extend repayment on 2.1 trillion won of debt, it said in a 28-page presentation shown to banks.
The company also wants to refinance 410 billion won by selling debt publicly with a guarantee from a third party and a new 500 billion won loan, in a package worth up to seven trillion won.
Korea Exchange Bank said earlier this week the company needed support amounting to about 4.5 trillion won. Korea Development Bank, another large creditor, and other banks have already indicated they won't provide the company with new funds though would consider extending repayments.
If they don't and the company is liquidated its assets will be put up for sale to recoup their loans.
Rather than looking to increase capacity most chipmakers are cutting costs, conserving cash, and waiting for prices to rise, so buyers are likely to be thin on the ground, Hynix says. The third-largest memory chipmaker has been on life-support from banks since chip prices fell to below cost earlier this year.
"The risks would be substantial" if creditors tried to sell the assets, the presentation says. Instead investors should focus on keeping the company in business for the "best prospect of recovering the full value of the debt." The company claims creditors should bet on Hynix, estimating its "firm value," or market value plus net debt, could rise to as much as 20.8 trillion won once the industry recovers. No time frame was given.
Analysts say Kim can't afford for Hynix, which employs about 14,000 people and accounts for 4 percent of the country's exports, to fail. They also say the banks can't afford to write off the money owed to them.
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