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Hynix shares surge on bailout hopes

Hynix Semiconductor Inc shares rallied as investors bet company creditors would reach an agreement that would revive a stalled US$6 billion rescue of the third-largest computer memory chipmaker at a meeting late yesterday.

The company's shares rose 15 percent to 1,115 won, their largest one-day gain since Sept. 4. The shares have lost three-quarters of their value so far this year.

"Investors are relieved to see light at the end of the tunnel for Hynix," said Lee Joon-hee, who manages 300 billion won (US$231 million) at Dongwon BNP Investment Trust Management Co. Lee doesn't hold any Hynix stock.

Hynix has been waiting for creditors to decide whether to bail it out for the second time since July. Lenders are trying to decide whether it can survive in a US$30 billion a year industry that's forecast to shrink by as much as 67 percent this year.

Creditors are being asked to lend more to Hynix, struggling with 8.6 trillion won of debt and losing money by making chips that sell for less than they cost to make. Demand for the chips dropped with falling sales of personal computers and because chipmakers built too many plants making too many chips.

While rivals like Samsung Electronics Co and Micron Technologies Inc are also suffering, Hynix was hardest hit because it began the worst-ever year for the memory chip industry having to repay three-quarters of its debt this year.

That debt is more than eight times its market value.

Hynix lenders will vote on proposals to allow banks that do not wish to participate in 1 trillion won of new loans for the company to exit the bailout.

Korea Exchange Bank, the main creditor to the company, made the proposal to break a deadlock over the new loans that threatened to derail the entire rescue package.

Banks wishing to exit the bailout will be offered the chance to exchange their loans into bonds convertible into Hynix shares after six months. The value at which the loans are converted will be based on a calculation of the company's liquidation value.

If the measure is approved, KEB may succeed in removing banks that have opposed the new money from the decision-making process.

This in turn may allow it to get approval from creditors holding 75 percent of Hynix debt, the level required by law to make any proposal binding on all other creditors.

Hynix creditor banks will likely vote to give it 750 billion won out of the 1 trillion won of new loans it's asking them for, said Korea Exchange Bank's Senior Managing Director Lee Youn-soo ahead of the meeting.

Any portion of the 1 trillion won denied by banks will not be taken up by other lenders.

Those that still object have the option to sell their loans back to the creditor group at a price set through an arbitration process.

Some banks are already saying they will vote in favor of the proposal, which might offer some a faster way to end their exposure to the company.

Kookmin Bank, which is owed 410 billion won by the chipmaker and previously opposed the provision of new loans, said it will vote in favor of the measure. H&CB, which will complete a merger with Kookmin today making it Korea's largest lender, also said it views the proposal "positively." KEB's offer gives an alternative way of exiting the bailout.

Under Korean law, creditors now have two choices: go along with what holders of three-quarters of Hynix's debt want, or sell their debt back to the major creditors.

Tuesday, KEB's Lee said banks that opted out of the bailout might end up being repaid with three-year Hynix bonds that pay no interest.

"Voting `no' would mean that we would have to face the possibility of getting paid in more debt," said Lee Deuk-young, a Kookmin Bank credit officer. "We can't go along with that."

A vote in favor of the third option would allow the bailout to proceed as a whole. This would include a 4 trillion won debt-for-equity swap, the sale of new shares and loan repayment extensions in addition to the fresh loans in a package totaling US$6 billion.

"We just want to see that the banks are committed to not just rescuing the company but helping it stand on its own two feet," said Kim Sung Soo, a credit officer in charge of Hynix exposure at Samsung Investment Trust Management Co.

Investment trust companies held a meeting yesterday to discuss Korea Exchange Bank's proposal and how they viewed their part in the plan, which consists of rolling over 1.2 trillion won of the company's debts.
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