Creditors sell part of Hynix stake at 0% discount

Eight sellers, led by Korea Exchange Bank, raise $817 million from the sale of a 6.7% stake in Hynix Semiconductor after failing to exit the Korean memory-chip maker through a M&A transaction.

A group of creditors to Hynix Semiconductor last night cashed in part of their remaining stake in the Korean memory-chip maker, raising a combined W923.15 billion ($817 million). The well-flagged transaction met with strong demand, especially from domestic investors, and amazingly priced flat to the market despite the fact that the share price has gained in eight of the past 10 sessions.

Clearly investors welcomed the opportunity to buy the stock in size without the risk of moving the market, but the deal was also supported by a perception that the sell-down will remove an overhang on the stock, allowing the share price to continue to head higher in line with a recovery in the markets for DRAM and NAND flash memory chips.

Hynix's creditors have made no secret of the fact that they want to exit their holding and recoup the money that they pumped into the company in 2001 after agreeing to a debt-to-equity swap that saved the Korean chip maker from bankruptcy. After previous capital market sell-downs (the first deal was completed in June 2005), the creditor group led by Korea Exchange Bank (KEB) held slightly less than one-third of the company before last night's sale and had been striving to sell their remaining stake to a strategic buyer.

However, they have repeatedly failed to find such a buyer at the right price and, at the end of February, said they would continue to sell smaller portions through equity market placements. The plan was to sell an 8% stake in the first half of this year and another 5% in the second half, but since one of the nine creditors chose not to participate in this round, last night's deal comprised only about 6.7% of the share capital.

Aside from KEB, the sellers were Daewoo Securities, Korea Restructuring and Collection Corp, National Agricultural Cooperative Foundation, Shinhan Bank, Shinhan BNP, Woori Bank and Woori Investment & Securities. The only creditor that wasn't selling was Korea Finance Corp.

Hynix's share price has risen 11.9% since that first announcement of the sale, including a 1.1% gain yesterday, although it is still 10% below the 2010 high of W26,100 that it hit in mid-January.

The 39.283 million shares that were put up for sale last night were offered at a price between W22,800 and yesterday's closing price of W23,500. The low end of the range represented a discount of 3% versus the close.

While this may have looked tight on paper, market watchers said the current valuations aren't that demanding and indeed investors proved willing to buy at no discount at all. According to sources, there was almost no price sensitivity in the book after the five-hour bookbuild, and while the deal was dominated by domestic investors, it was also supported by some high-quality international orders. In the end, the price couldn't really be set anywhere but at the top of the range.

Last night, the indication was that 70% of the deal would be placed with domestic investors, leaving the remaining 30% for international accounts, although allocation was still ongoing at the time of writing. The order book was described as "tight" and "top-heavy", suggesting that a large portion of the deal was placed with a small number of accounts.

The transaction accounted for about five days' worth of trading volume, based on the average daily turnover in the past three months, and will see the creditors' combined stake fall to 21.4% from 28.1%. Their remaining portion will be locked-up for 90 days, and the company will also be prevented from selling new shares or equity-linked securities during that period. Interestingly, however, the term sheet notes that there is an exception from this for the sale of a convertible bond of up to $500 million. The fact that a potential carve-out is so clearly defined would suggest that a CB may already be in the works.

Hynix last sold CBs in August 2008 to refinance an outstanding CB that was becoming puttable. It initially planned to approach the international markets, but after several delays, Goldman Sachs and Macquarie, which had been mandated to lead the transaction, were dropped and the deal was turned into a W500 billion ($462 million) domestic offering.

Last night's sell-down was arranged by Credit Suisse, Nomura and Woori Investment & Securities, with three other firms -- NH Investment & Securities, Shinhan Investment Corp and Daewoo Securities -- joining the line-up as passive bookrunners.

Hynix is the largest DRAM chip maker in the world behind Samsung and is highly leveraged to the memory-chip cycle. This proved positive in the fourth quarter last year when its operating performance rebounded sharply along with a recovery in the industry as a whole.

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