Credit risk agency Standard & Poor's cut Hynix Semiconductor Inc's rating yesterday as South Korean banks kept up their haggling over how to rescue the microchip giant.
Standard & Poor's lowered its long-term rating on Hynix and its US subsidiary to CC from CCC-plus, three weeks after the rating was downgraded from B.
The downgrade reflects "an increased likelihood that a financial assistance package under discussion by Hynix's creditors will include a debt-for-equity swap," it said.
The US agency warned that Hynix's ratings could be lowered to "selective default" if the package includes "terms detrimental to some classes of creditors."
Hynix has called for fresh loans to prevent its collapse, on top of drastic debt rescheduling.
But creditors are still divided over whether to approve a 6.7 trillion won (US$5.2 billion) rescue. The uncertainty has left the world's third largest memory chip maker in limbo.
With global chip demand and prices plumetting, lenders face an agonising choice over whether to pump new money into the debt-ridden firm or pull the plug.
Analysts have put the amount of the fresh loans required at about 4 trillion won over the next five years, warning that without support, Hynix would default this year.
But some banks have opposed fresh loans due to their heavy exposure to the stricken company, stoking fears that the company could be put into court receivership.
The collapse of Hynix, which was separated on August 1 from the embattled Hyundai Group, threatens a chain of bankruptcies among subcontractors and a financial crunch.
"No one can say: `Kill off Hynix.' They seem to intend to save it. Now they are trying to minimize their share of the burden and this is delaying the decision," said Good Morning Securities analyst Kwon Jae-min said.
National Assembly member Kang Un-tae of the ruling Millenium Democratic Party, demanded an active government role in helping Hynix, warning that court receivership would cost banks 3.1 trillion won in loan loss provisions.
The new package is made up of 5.2 trillion won from financial institutions and 1.5 trillion won from state agencies. Creditors are required to swap three trillion won of Hynix debt and convertible bonds for equity to raise the firm's capital.
But minor creditors and shareholders are reluctant to approve the swap due to fears of capital reductions and a rights issue.
Local investment trust companies have also opposed the package and foreign banks are concerned about the company's estimated 12 trillion won debt.