Hynix Semiconductors' nine remaining creditors last night sold a combined 4.1% stake in the company through a placement, reaping W584.5 billion ($491 million). This was the second sale of shares in the Korean memory-chip maker by the group this year and the second time that they managed to offload their shares at a zero percent discount.
The offering came after the company reported pretty good second quarter earnings, but the key reason why the demand was again strong enough to allow the trade to go ahead at market price was that the transaction removes the final overhang imposed by the creditors' repeated selling. Yesterday's sale will reduce their combined holdings to 16.5% from 20.6% and the creditors, led by Korea Exchange Bank, told investors that there will be no more sell-downs in the capital markets after this. The rest of their stake will be reserved for a trade sale.
Indeed, the term sheet noted that while the creditors have all agreed to a three-month lock-up, there is an explicit carve-out for an M&A sale. Whether this suggests that they are already in discussions with a potential buyer or if it is just another case of the creditors' perennial optimism that a buyer will eventually materialise remains to be seen, but it is no secret that they have struggled to find a single strategic buyer willing to take the shares off their hands.
The creditors have wanted to sell for some time to 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. Their first capital markets sell-down was completed in June 2005 and the group has gradually reduced its stake through a series of similar transactions since then, while at the same time looking for a strategic buyer.
Having failed to find such a buyer at the right price, the creditors said at the end of February this year that 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 the actual sales have turned out to be slightly smaller than that. In March, they sold about 6.7% of the share capital and last night's trade accounted for about 4.1%.
The deal comprised 24.406 million shares that were offered at a price ranging from W23,200 to W23,950, with the upper end of the range being equal to yesterday's closing price. The bottom of the range represented a 3.1% discount versus the close.
The final price of W23,950 was marginally higher than the W23,500 at which the creditors sold their shares in March. Immediately after that transaction the share price rallied to a high of W29,100 in early April, but since then the stock has been volatile with a slight downward bias following downgrades by a few analysts.
Since the creditors were bound by a three-month lock-up after the March sale, they were unable to capture the April peak, but when the lock-up expired on June 15 the share price was still at W27,100 and four days later it closed at W28,250. Thus one may question why they didn't sell then, instead of waiting until the stock once again fell below W24,000.
On June 16, Korea Deposit Insurance Corporation (KDIC), a government investment vehicle, sold a significantly smaller stake in Hynix -- 0.75% of the existing share capital -- at a fixed price of W28,200. This transaction too came at a zero discount versus the market price at the time and allowed the seller to raise about $102 million.
Sources said there was good initial demand from international investors for last night's trade, which allowed the arrangers to announce the main books would close at 7.15pm Hong Kong time. This helped to draw out domestic investors as well, and to push the price to the top of the range. The fact that the deal accounted for only two days' worth of trading volumes, based on the three-month average, would have made the deal fairly easy to absorb even without a discount.
However, domestic investors weren't quite as enthusiastic as in March when they took about 70% of the deal. This time, the early indication was that they may not get more than 60%, although the bookrunners were still discussing the final allocation in the early hours of the Hong Kong morning. As a result, few other details were available about the distribution.
A total of about 50 investors participated in the transaction, which was jointly arranged by Credit Suisse, Nomura, Shinhan Investment Corp and Woori Investment & Securities. This was the same line-up of banks as for the March transaction, with the exception that Shinhan only had a passive bookrunner role on the previous trade.
Aside from KEB, the sellers were Daewoo Securities, Korea Finance Corp, Korea Restructuring and Collection Corp, National Agricultural Cooperative Foundation, Shinhan Bank, Shinhan BNP, Woori Bank and Woori Investment & Securities.
Hynix is the largest DRAM chip maker in the world behind Samsung and is highly leveraged to the memory-chip cycle.