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Chartered needs help as losses mount

The Singapore government agreed to pump about US$380 million into Chartered Semiconductor Manufac-turing Ltd (特許半導體), as the unprofitable chipmaker offered shares to existing shareholders at half of their Friday closing price. The company's stock fell 23 percent.

Chartered, which racked up US$603 million in losses in the past six quarters, plans to sell stock at S$1.00 (S$0.57), compared with S$2.10 on Friday. The government's Singapore Technologies Group, which owns a 60.5 percent stake, will subscribe. Merrill Lynch & Co will manage the remaining US$253 million offer and buy any stock refused.

The decision to seek more government investment raised concern among other shareholders that the company's management is pessimistic about the outlook for the chip industry. The world's third-biggest manufacturer of custom-made chips needs money to build a new plant or risk losing ground to Taiwan Semiconductor Manufacturing Co (台灣積體電路公司) and United Microelectronics Corp (聯電).

"Raising money at this point probably means that the industry outlook is going to be quite bad," said Tan Gee Chee, who holds the stock as part of the US$100 million in equities managed by OUB Optimix Funds Management. "We have no choice but to subscribe to the rights because the share price of the company has fallen so much."

Chartered Semiconductor's market value peaked at about S$25.5 billion in March 2000 and has since fallen to about S$2.3 billion, shedding the equivalent of 15 percent of Singapore's gross domestic product, which is about S$147 billion.

The company was hurt by its dependence on communications chips customers such as Ericsson AB, which pulled orders as demand for chips used in phone networking equipment slumped.

"The overriding issue is clearly the over-investment in this technology area two to three years back, which is still being unwound right now," said Jan Lee, chief strategist at Hypo-und Vereinsbank AG, who helps manage more than US$1 billion in Asian investments.

Chartered Semiconductor said the share sale is designed to shore up its balance sheet and give it resources to invest in more equipment if demand for chips should rebound.

"We wanted to be sure we had adequate flexibility," CEO Chia Song Hwee said.

The company chose to raise money by selling shares to existing shareholders because of ``turbulent'' financial markets, he said.

The additional cash will reduce the company's debt-to-equity ratio to 0.6 from 0.8, he said.

Chartered Semiconductor has debt of about US$575 million, cash of US$831.4 million as of June 30 and an untapped US$620 million credit line.

The cash infusion from the government through Singapore Technologies comes at a time when many analysts had speculated the government was planning to shed its stake in Chartered Semiconductor. Government investment agency Temasek Holdings, the parent of Singapore Technologies, said in July it may reduce stakes in some of its companies.

"If Temasek is still willing to put money in, that alleviates concern about immediate divestment," said Tony Tsai, an analyst with credit-ratings company Standard & Poor's. He said the funding was "slightly positive" from a credit rating standpoint.

Standard & Poor's rates Chartered Semiconductor's debt BBB-, or one level above junk.

The company competes with rivals such as Taiwan Semiconductor, which makes 300mm silicon wafers. The bigger wafers cut production costs by a third by providing double the number of chips than can be cut from standard 200mm wafers.

Chartered Semiconductor plans to start making the larger wafers next year. Its latest factory, known as Fab 7, is expected to begin chip production in the third quarter of next year.
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