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."
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