Creditors OK $7bn Hynix rescue plan

More loans! More equity-for debt! More repayment holidays!

By Tony Smith, 1st November 2001

Magic Quadrant for Enterprise Backup/Recovery

Debt-laden chip maker Hynix's rescue plan will go ahead as planned after the company's creditors agreed after weeks of haggling to extend its credit line, postpone payment on some existing loans and convert other debt to equity.

So what will happen now? First, six major Hynix creditors, including the Korea Exchange Bank, will lend the company a further one trillion won ($776 million). They will also increase the previously agreed debt-for-equity swap by one trillion won to four trillion won. Repayment will be extended on another four trillion won of debt.

The scheme to provide Hynix with further credit proved to be the major stumbling block in negotiations between creditors and a failure to reach an agreement had threatened to derail the process. No consensus was reached yesterday, but a proposal by KEB that would allow creditors to swap debt for bonds was passed.

So eight creditors, including Kookmin Bank, will exchange their debt for bonds based on Hynix's liquidation value. That price will be collected next month. The returns won't be as high, but at least Kookmin and co. will have ended their exposure to Hynix's woes.

Which, despite the latest cash injection, will continue. The company is moving to sell off assets in order to balance its books - indeed, the loan agreed yesterday is dependent on Hynix generating at least 2.6 trillion won through a restructuring and asset-sale programme - but its debt remains a heavy burden.

It can't look to the market for much succour - DRAM prices remain depressed, and a recent slight rise is no basis to assume the worst is over or that recovery is in sight. With market research organisation Gartner predicting a 67 per cent fall in sales this year and a 19 per cent fall during 2002, the situation is going to get a lot worse for Hynix.

Japanese memory makers NEC, Hitachi, Toshiba and Matsushita have complained about Hynix and Samsung selling DRAM in Japan at below cost price, and Micron is considering making a similar complaint in the US.

Micron is also contemplating charging the Korean government - many of Hynix's chief creditors are part-owned by the Korean state - with aiding Hynix beyond the limits of both fiscal prudence and World Trade Organisation regulations. ®