Hynix Semiconductor Inc shares surged by their 15 percent daily limit after creditors approved a bailout that delays debt repayments and gives the No. 3 memory chipmaker the cash it needs to stay in business.
Citibank NA, Korea Exchange Bank and four other state banks agreed to give money-losing Hynix about 650 billion won (US$501 million) in new loans starting in December and exchange about 3 trillion won of debt for its shares. Shares in the company, which represents about 4 percent of Korea's exports and employs 14,000 people, rose to a seven-week high of 1,280 won.
Kookmin Bank, H&CB and all of the privately owned creditors except Citigroup Inc, whose investment-banking arm advises Hynix, declined to give the company more money. They opted to sell their debt for less than its face value as Hynix continues to lose money selling chips at less than the cost of production.
"It's just prolonging the pain, like keeping a junkie on drugs," said Henry Lee, managing director of hedge fund Hendale Group Ltd. "It's painfully obvious this bailout is government run, focused on the impact on the economy were Hynix to fail rather than the company as a going concern."
The company is struggling to pay 8.6 trillion won of debt as it loses money because of falling demand and the industry's excess manufacturing capacity. Hynix lost 3.9 trillion won in the first three quarters of this year.
A US$4.4 billion rescue package in June and an injection of US$1.25 billion by selling stock globally wasn't enough to keep the company in business as chip prices slumped to half their cost.
Kim Kyung-lim, president of Korea Exchange Bank (KEB), Hynix's largest creditor, denied claims the government was involved in the decision to keep Hynix in business.
"Just because the banks happen to have the government as the major shareholder doesn't mean that the government gets involved with their management," Kim said. "Each bank made its decision on what would be best."
The company forecast it will save between 400 billion won and 450 billion won a year in interest payments on receipt of the package, which requires creditors to swap debt for equity, write off debts and lower interest on loans. The company spent 1.2 trillion won in interest payments this year, according to KEB.
The agreed debt-for-equity swap is 1 trillion won less than previous expected while the new loans were one-third less, after the eight creditors declined to take part in the bailout. Debt write-offs by creditors not willing to take part compensate for the shortfall, said Hynix.
"The overall result on our interest payment is the same because the creditors who opted out will write off a considerable amount of debt," said Cho Kyu-chung, a senior vice president and chief financial officer at Hynix.
With less money going to service debt and a 650 billion won cash injection, the company plans to upgrade its production facilities to boost its competitiveness, betting on a recovery in chip prices. Its creditors are backing this strategy.
"The new loans will help Hynix's cost structure but will also increase chip supply, which will make conditions deteriorate further," said Del Ricks, W.I. Carr Securities' regional technology head. "The imbalance in the market may correct by the fourth quarter of next year. That's a long way away for Hynix."
Demand for PCs, which use Hynix's products, is stagnant and not showing signs of a recovery, while consumer confidence in the US, the world's largest economy, fell in October to its lowest level in more than seven and a half years.
Retreating creditors see the threat of liquidation looming on the horizon and are eager to try to recover their loans. What they get will depend on the potential selling price of the company's assets, which will be determined by an independent valuer. In today's market there are few buyers.
"The market for used fabrication equipment right now is extremely weak," said WI Carr's Ricks. "Outside some Chinese companies, no one is buying. Its liquidation value may be quite low."
The chipmaker has given creditors plans on how it will raise 2.6 trillion won selling assets and cutting operating costs in the second half of this year through to the end of next year, KEB said.
It's been trying to focus on making chips since breaking away from the now defunct Hyundai industrial group, raising money by selling off parts of its flat-panel unit and its flat-screen business.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source