Additional One Trillion Won Funding for Hynix a Difficult Proposition

The creditor group for Hynix Semiconductor discussed injecting an additional 1 trillion won including new funds into the troubled chip-maker but is having a difficult time reaching consensus due to opposition by some of the members.

Salomon Smith Barney (SSB), the lead financial adviser for Hynix, submitted a proposal that recommended that the debt-for-equity swap be increased from the original 3 trillion won to 3.5 trillion won, and also proposed that an additional 500 billion won be injected as part of the revised plan. But with commercial banks such as Hana Bank and Hanmi Bank expressing strong opposition to these recommendations, it remains to be seen whether an agreement can be reached on the revised proposal.

At the same time, the Korean government realistically has no room for intervention or guidance in the Hynix bailout efforts, especially since the U.S. is exerting considerable, multifaceted trade pressure on the Korean government with respect to this specific case.

On September 3, the Hynix creditor group held a general meeting at the Korea Exchange Bank and discussed the revised loan adjustment proposal for a 7.7 trillion won funding package, which represents a 1 trillion won increase from the original plan of 6.7 trillion won. Specifically, the original proposal outlined 2 trillion won in convertible bonds (CB) and 1 trillion won in new shares issued. The revised proposal now stipulates 2 trillion won in CBs, 500 billion won in new share rights issued to existing shareholders, and 1 trillion won in CBs or additional share rights to the creditor group member banks.

Following the intention of the Korea Development Bank (KDB) to exclude 500 billion won of the company`s publicly held corporate bonds from the rapid debt acquisition status, Salomon Smith Barney drafted a plan that includes an additional 500 billion won in new funds. According to Keun-Yong Jung, president of KDB, ``the rapid debt acquisition program is aimed more at assisting companies that can be revived but are experiencing short-term liquidity problems.`` and that ``because the basic premise of Hynix`s ability to be revived is questionable at this point, the rapid debt acquisition program will not be extended in this case.``

In addition, the creditor group is evaluating the possibility of including as part of the debt-equity swap move the considerable amount of collateral-backed bonds held by the Korea Exchange Bank and the Korea Development Bank but which, up to this point, had not been included as part of the swap plan. ``Even if the creditors provide additional funding, KDB is not in a position to do the same, although it may be possible to make adjustments to the outstanding loans.``explained Jung. He further added, ``But if the creditor group, including secondary financial institutions, are unable to come to a collective agreement on the loan adjustment, court receivership will become unavoidable for Hynix.``

Kim Do-Young nirvana1@donga.com