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February 20, 2006 10:04 pm

Hynix to seek talks to raise $1bn

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Hynix Semiconductor plans to discuss with creditors a possible move to raise $1bn in the equity markets as the world’s second biggest memory chipmaker seeks to make up for years of under-investment through aggressive capital expenditure.

The South Korean company, which emerged from creditor control last year after almost collapsing during the semiconductor industry's meltdown in 2001, plans to build new plants and use strategic alliances to increase market share.

“We want to go to the capital markets if we see a clear opportunity to grow faster,” said Kwon Oh-chol, senior vice president of strategic planning. “We believe our competitiveness is far better than foreign competitors.”

On the size of any equity offering, Mr Kwon said: “If you go to the market for several hundred million dollars, that’s not that meaningful. Over $1bn would be a meaningful size.”

However, creditors, led by Korea Exchange Bank, are unlikely to greet such a proposal. They will probably be concerned about equity flooding the market before they sell their stakes.

While stressing that Hynix had no concrete plans to raise extra capital, Mr Kwon said the management intended to discuss such a move with creditors.

“If the market is going well and we have confidence about winning more market share, then why not spend more?” he said. “[But] we have to talk to our shareholders and co-ordinate with them in terms of the timing of a share offer.”

State-backed banks saved Hynix from bankruptcy, injecting it with $4.6bn in a series of bail-outs in 2001-02. After tough restructuring and a recovery of the volatile chip market, Hynix completed its debt-workout programme in July and posted a record profit of Won1,700bn ($1.8bn) last year.

Creditors, eager to recoup some of the cash they injected into Hynix, sold about a third of their 73.8 per cent stake last year. But they are locked into holding the remaining 51 per cent until the end of next year. Hynix can
theoretically go to the market after April.

After years of paying down debt rather than investing in production, Hynix is focusing on building production facilities.

Based on present cash flow, Hynix has “capex affordability”of $3bn a year. Mr Kwon said that implied that even with zero growth, Hynix had about $20bn to spend in the next seven years. This compares with sector leader Samsung Electronics’ plan to spend $33bn.

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