Hynix and creditors complete $1.5 billion equity offering early

Healthy demand allows the bookrunners to close the order books early and fix the price at a tight discount.
Hynix Semiconductor and its creditors have raised a combined $1.5 billion from the sale of new and secondary shares at a tighter-than-expected discount following strong demand from international investors in particular.

The deal was completed ahead of schedule after the good response prompted the bookrunners to accelerate the bookbuilding and stop taking orders on Friday evening. The roadshow, which was launched on Thursday (June 22), was originally scheduled to run until the New York close on Monday, but sources said the creditors had jumped at the opportunity of getting the deal done quickly to avoid the risk of another market downturn.

According to sources, the price for the combined deal was fixed at W26,500 per share after the close of the Korean market Friday. The price equalled a discount of no more than 2.2% to the latest market price of W27,100 û well below the initial guidance of 5-9% - and corresponded to about $27.75 per GDR. (Each GDR is equal to one common share.)

The creditors led by Korea Exchange Bank sold 43.1 million shares worth W1.14 trillion ($1.2 billion) in their second sell-down in eight months. The creditors became shareholders in Hynix in 2001 when they agreed to a debt to equity swap that prevented the Korean chip maker from bankruptcy.

Hynix itself, which has emerged from restructuring as the worldÆs second largest manufacturer of both DRAM and NAND Flash memory chips with an 18% market share in each category, raised $300 million for its expansion needs by selling 10.8 million new shares.

Of the total $1.5 billion deal size, half was sold to international investors in the form of global depositary receipts. The other half went to domestic investors, which was a greater portion than in the previous sale in October 2005 when they ended up with about 37%.

Merrill Lynch was the global coordinator for the offering and also joint bookrunner for the international tranche together with Credit Suisse, Deutsche Bank and Woori Investment and Securities. The domestic tranche was be managed by Daewoo Securities, Good Morning Shinhan Securities and Hyundai Securities.

According to sources, international investors ordered $4.5 billion worth of shares, or six times the amount available to them, with about 150 accounts participating. Domestic demand amounted to more than $1 billion.

Surprisingly, given their noticeable absence in many other recent deals, the demand from hedge funds was said to have been slightly greater than from long-only funds, suggesting risk appetite may slowly be returning. About 40% of the orders came from the US, 35% from Asia and 25% from Europe.

ôThe deal had been anticipated for some time and the share price had also come off about 30% since the highs in January, which means a lot of investors saw good value. People also still like the NAND and DRAM space,ö one observer says.

At the same time, the price was 37% above that fetched in the first divestment last year when the shares were sold at W19,300 or a 7.9% discount to the then market price, meaning the creditors too were happy about the level

The investor interest may have been further aroused on the first day of the roadshow, when its main competitor Samsung Electronics presented an upbeat business outlook, including a forecast of a supply shortage of NAND flash chips in the third quarter due to strong demand driven by new multimedia products.

In the second quarter, the pricing for DRAM chips has been strong, while prices for NAND flash chips were stable, the companyÆs head of investor relations, Chu Woo-sik, said.

Despite the strong response, the Hynix deal was surrounded by uncertainty over the weekend after discussions about the split between the international and domestic tranches dragged on and prevented allocations from being finalised on Friday. Then, a representative from KEB told the media in the early hours of Saturday morning that the deal had been called off.

The comment caused a lot of confusion, given the earlier indications that the sale had been going well and the KEB representative offered no explanation for why the deal was to have been pulled. It was still unclear last night why that comment was made, as according to sources the deal was never put on hold even though some issues took longer than expected to work out.

The shares sold by the just over 40 creditors represented 9.6% of the existing share capital and will reduce their combined stake to 40% from 50.6% after taking into account the dilution caused by the new share issue.

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