Hynix sets price for $567 million share sale

Hynix Semiconductor has set the price for its upcoming share sale at W10,350 per share, which will allow it to raise a total of W724.5 billion ($567 million). The money raised will be used to improve the company's financial position and liquidity, though the amount is slightly less than initially hoped for due to a drop in the company's share price since the deal was first announced.

The price was set at a 30% discount to the one-week volume-weighted average price up to yesterday's closing price, but the discount versus yesterday's close of W14,750 is only marginally tighter at 29.8%, which bodes well for the demand. The fully-underwritten offering is primarily targeted at Korean retail and institutional investors -- the prospectus comes only in Korean -- but international investors can participate. The nine banks involved in the transaction, including Credit Suisse as the only non-Korean one, will accept subscriptions on May 13 and 14.

Applying Korean deal mechanics, all orders must be pre-funded at the time they are submitted and allocations will be pro-rata.

As announced earlier, Hynix is offering 70 million new shares, or 13.5% of its existing share capital. The company had initially hoped to raise about W819 billion ($645 million), but because of the time gap between the initial announcement on April 23 and the fixing of the offer price - as required by Korean regulations - as well as the quite automatic pricing mechanism, the company had no choice but to go with a slightly lower price per share.

However, the initial announcement was made on the back of a 14.8% surge in Hynix's share price the previous day, which means the earlier expectations may have been slightly inflated. Since the announcement, Hynix's share price has dropped 11.4% since April 23, while the benchmark Kospi index has risen by 2.8%. Hynix has however gained 87% since mid-February amid some optimism that the end of the slump in the memory chip industry may be drawing nearer.

The Korean memory-chip maker is trying to shore up its finances after sales volumes slowed in the first quarter and selling prices for DRAM chips continued to decline, leading to a 13% drop in revenues compared with the fourth quarter 2008 and a net loss of W1.18 trillion ($930 million). This was down slightly from a loss of W1.69 trillion three months earlier. The operating loss was reduced to W515 billion from W802 billion in the previous quarter, but most of that improvement disappeared on the way to the bottom line due to interest expenses and foreign exchange-related losses.

The company, which is the largest DRAM chip marker in the world behind Samsung, recorded its biggest annual net loss in seven years in 2008 with a shortfall of W4.77 trillion.

While Hynix continues to enjoy the support of its major creditors, including Korea Exchange Bank, Woori Bank, Shinhan Bank and Korea Development Bank, which still own just over 31% of the company, it is under pressure to release liquidity to finance its capex-intensive business model and to meet its debt obligations. The company still has around W1.0 trillion ($788 million) of long-term debt maturing this year, mostly in the second half and to conserve cash it has revised down its capital expenditure plans for this year to below W1 trillion after spending W2.5 trillion last year.

In a credit analysis issued in early April, Moody's Investors Service notes that Hynix's liquidity profile is weak as a result of the prolonged deterioration of the memory market and the company is likely to breach some of the covenants on a syndicated loan again in 2009 (it was in technical breech as of December 2008) unless there is a sustainable recovery in DRAM prices in the second half of the year. The company's current credit rating of B1 reflects Moody's expectation that the company's creditors will continue to support it, the agency said.

Daewoo Securities is lead manager for the share sale, with the support of eight co-managers: Woori Investment & Securities, Hyundai Securities, Good Morning Shinhan Securities, Shinyoung Securities, NH Investment & Securities, Korea Investment & Securities, Tong Yang Investment Bank and the Seoul branch of Credit Suisse. 

Daewoo and Woori are underwriting the greatest portion of the sale with 21.4% each, followed by Credit Suisse with approximately 12.8%. The other co-managers are underwriting between 4.3% and 11.3% apiece.