Hynixed Premium

Over to you, Credit Suisse. The consortium of banks itching to dispose of a controlling stake in South Korea’s Hynix, the world’s second-largest maker of computer memory chips, has given the Swiss lead managers until September to whip up some interest.

Good luck. Hynix was unloved from the outset. Seoul created it after the Asian crisis in 1999, ordering chaebols Hyundai and LG to find some way of mashing their rival chip businesses together. The tech slump then savaged the margins of the over-leveraged combine; lenders wiped out shareholders in a debt-for-equity swap in 2002. The banks have since taken advantage of periodic bursts of excitement over NAND flash chips – which sit inside every memory stick or MP3 player – to sell down their interest to 36 per cent. But they missed a good chance to exit entirely during last year’s surge; the stake is now worth less than a quarter of the $3.8bn of its value last June. Sales are expected to drop by about a fifth in 2008, leading to the first annual loss since 2003.

A big restructuring last month paved the way for a $600m cash infusion – three-fifths from the banks, the rest from equity markets – that should tide Hynix through. But to tempt buyers, the banks need to hold out the promise of serious margin improvement. According to DRAMeXchange, some chip prices have bounced by 50 per cent from their lows last month, as the supply glut eases. But prices are still below most chipmakers’ costs, and the long-awaited industry consolidation, especially in Taiwan, has yet to materialize. Within Korea, the only obvious trade buyer – if Seoul can look the other way on competition – is Samsung Electronics, but its fourth-quarter costs probably exceeded earnings before interest, tax, depreciation and amortisation by about 11 per cent; Hynix’s negative margin on this basis was probably more like 16 per cent. A tall order for Zurich’s finest.

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