Hynix Semiconductor Inc creditors who seek to end their lending relationship with the third-largest chipmaker may have to write off four-fifths of their loans, main creditor Korea Exchange Bank said.
The write-off would affect lenders that don't participate in a new bailout of the third-biggest memory chipmaker and who would instead receive bonds convertible into Hynix in exchange for their existing claims on the company, said Chung Hyung Ryang, head of the credit risk division at Korea Exchange.
The value of the convertible bonds could be just one-fifth of the face value of the banks' claims on the company, depending on the value that Arthur Andersen LLP, which is examining the company's finances, puts on the debt, Chung said.
"We have suggested a level of 20 to 29 percent" as an appropriate level for the liquidation value of Hynix, Chung said.
"Creditors may meet tomorrow [today] to discuss the level."
The write-down could affect Kookmin Bank, Shinhan Financial Group, SeoulBank, Hana Bank, Koram Bank, H&CB, Industrial Bank of Korea and Pusan Bank -- which hold about a fifth of the company's 8.64 trillion won (US$6.7 billion) debt and which are reluctant to continue lending to a company that's selling its chips for less than the cost of production.
Korean bank earnings have been hurt because of lending to the company.
Kookmin and the other seven lenders agreed to allow the second bailout of the chipmaker to proceed, after being offered an exit clause by major creditors who are lending Hynix a further 650 billion won in new loans.
Under the agreement lenders wishing to remove themselves from the rescue package will receive convertible bonds, which can be exercised after six months, in return for their loans.
The arrangement differs from that with banks which outright opposed the whole rescue plan. Korea First Bank and others who previously exited the bailout may be paid off in five-year bonds.
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