Hynix, Normalization of Management and Sale Plan

As a restructuring plan for Hynix Semiconductor is taking shape, it is highly likely that efforts to normalize the company’s management and sell it to a third party will be made at the same time. In the past, its creditors stuck to selling it after normalizing the management first. However, in the newly decided plan, the government’s opinion was somewhat reflected.

Korea Exchange Bank, one of major creditors of the semiconductor company, said Nov. 24, "The special committee for the restructuring of Hynix Semiconductor consisting of Woori Bank, Chohung Bank, Korea Exchange Bank and City Bank will meet Nov. 26 to discuss the restructuring plan suggested by its financial advisor Deutsche Bank. If the plan is passed at the meeting, then it will be put to the vote in the general meeting of its creditors.

However, the second financial institutions including investment trust companies are against the write-off plan and with the December presidential election just around corner, the government is reluctant to intervene. So there seems a battle ahead for Hynix.

Ñ What is Deutsche Bank’s plan? = The final report of Deutsche Bank predicts that at present the company’s cash flow is not good because of the widespread slow down in the semiconductor industry and it would suffer liquidity crisis as its 900 billion won debts mature throughout next year, including 420 billion won in the first quarter.

According to Deutsch Bank’s plan, the creditors should restructure half of its bonds without security (1.85 trillion won) through debt-for equity swap and for the rest of the bonds they should reduce interest by 50 % or roll over the debt by 2-3 years.

Also the company should liquidate all its old facilities, spin off non-memory operations and make efforts to attract foreign capital. It should continue its efforts to find a buyer of its memory operations. The Deutsche Bank plan is not so different from the one at that time when the creditors tried to sell it to the US company Micron Technology.

Ñ How much is the plan possible? = First of all, debt restructuring is a big obstacle. The debt-for-equity swap for 50 percent of its whole bonds without security effectively means write-offs, so the second financial institutions are not likely to agree on the plan. Banks have loan-loss reserves which are more than 80 percent what they need to be adequately provisioned, so they insist on increasing the rate for debt-for-equity swap. But investment trust companies are opposed to the plan.

An official with the a group of Hynix creditors said, "If the company is left as it is, new investments cannot be made to the company, damaging its competitiveness all the more. So the company should normalize its management by debt restructuring."

However, some skeptics say that because the discussion on restructuring of the company would go to the starting point with a new president coming to power, it doesn’t need to be discussed now.

Do-Young Kim nirvana1@donga.com