Korea First Bank, Kwangju Bank and other lenders choosing to opt out of a second bailout for Hynix Semiconductor Inc may be paid off in what they are trying to dispose of -- Hynix debt.
Korea First will be offered five-year Hynix bonds in return for its 274 billion won (US$211 million) of debt, Korea Exchange Bank, the main creditor of the No. 3 memory chipmaker, said last week.
"How can it be called an `opt-out' option if the bank cannot opt out completely from the bailout in the end?" asked Yang Dong-kyu, a credit officer at Korea First. The bank is unlikely to accept repayment of the debt in more Hynix bonds.
Hynix, which employs 14,000 people and accounts for about 4 percent of the nation's output, is getting more than 6.6 trillion won in a bailout just five months after a US$3.3 billion reorganization of its debts and a US$1.25 billion share sale. For Korea First and other banks that don't want to sign on to a new deal, the problem is new government regulations aimed at speeding up the treatment of firms that can't repay their debts.
The rules, which let banks sever their lending relationship with a company if they oppose a rescue plan, aren't specific on how the loans owed to the dissenting bank are then settled.
This means that Korean lenders, who have seen profits hurt as they set aside funds in case Hynix defaults, may have to continue to carry exposure to the company, in addition to having to write off a portion of their existing loans.
"If that's how they would characterize an opt-out option, it's a bad joke," said Kent Davy, a foreign legal adviser at law firm Hwang, Mok, Park & Jin. "This means that the corporate restructuring promotion law is worse than anyone had believed." Under the regulations introduced in September, the first option for Korea First was to seek to have its Hynix debt purchased by lenders that are continuing to back the company.
That appears unlikely to happen. The company's main creditors don't want to increase their exposure and made a counter proposal: exchanging loans for new Hynix bonds.
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