Hyosungs Bid for Hynix in Doubt
By Kim Yoo-chul
Staff Reporter
Hyosung Corp. submitted a bid Tuesday for a major stake in Hynix Semiconductor, but many market watchers are raising doubts over its potential takeover, citing the company's limited cash resources.
Hyosung may scrap its bid if they fail to find strategic partners for funding the takeover project, a source familiar with the situation told The Korea Times Wednesday.
In a regulatory filing asked by the Korea Exchange (KRX) on Wednesday afternoon, Hyosung said it has been reviewing a possibility to buy a 28 percent stake in the Icheon, Gyeonggi Province-based memory chipmaker.
"The sale process is expected to pass through a tough period as Hyosung isn't financially stable enough to independently buy the stake," an official at one of creditors of Hynix said.
Korea Exchange Bank (KEB) and eight other creditors of Hynix plan to choose the preferred bidder to negotiate financial terms sometime next month. Hyosung was the only bidder in a preliminary round to buy a $3 billion stake in Hynix.
Such worries painted by the banking official have also been in line with generally unfavorable market consensus.
Analysts and market watchers say Hynix is "too big" for Hyosung considering the situations that even top conglomerates avoid a risky jump into the highly cyclical memory chip sector. They advise investors to sell Hyosung stocks.
Shares in Hyosung Corp. went a daily limit-down, plunging 15 percent to end 84,400 won on the nation's main bourse, according to KRX.
"Given Hyosung's limited cash resources, we believe successful completion of the stake purchase would be difficult," a U.S.-based brokerage Goldman Sachs said in a report.
"We've just decided not to cover Hyosung anymore as Hyosung's bid for Hynix has raised uncertainties," So Yong-hwan, an analyst at HMC Investment, said, adding he didn't see synergy effects between the companies.
Cash-equivalent assets owned by Hyosung at the end of the second quarter came to 163 billion won with the debt-ratio standing at 77 percent.
"If Hyosung buys 165.5 million Hynix shares valued at about 3.65 trillion won, its debt ratio is expected to surge to 228 percent," Kim Young-jin, an analyst at KB Investment, said.
"The value of Hynix stake nearly equals Hyosung's total assets," Song Jong-ho, an analyst at Daewoo Securities, said.
"Meanwhile, it might be difficult for Hyosung to raise cash from banks as its debt-ratio was high. The key point is that Hyosung has to mobilize at least 2 trillion won in cash either by forming a consortium or finding a strategic partner. But that will also be tough considering its weak financial soundness."
Watchers in the business circle have also shared such negative news by pointing out the cyclical ups-and-downs nature in the global chip industry.
The chip industry is highly subject to price movement and cyclical patterns. At least 1 trillion won will be needed annually just for maintenance of chip facilities. When chip prices go down due to supply and demand imbalance, and other external factors, a chip company suffers massive losses.
Hynix has remained in red ink over the past couple of years amid the continued years-long prolonged downturn in the global chip industry. Hit by weaker chip prices, German's Qimonda filed for bankruptcy, while Taiwanese players were still suffering.
"A steady investment will be needed to run a chip business. I doubt that Hyosung is a qualified player for Hynix," Lee Joo-wan, a senior researcher at Hana Financial Institute, said.
"Hyosung will be cornered into a liquidity crisis previously seen in Kumho Asiana Group when the chip market goes down. A hesitant decision will wholly threaten the entire group," Lee added.
Hyosung officials say the participation followed the group's efforts to find new and future growth engines.
They say the successful acquisition will boost Hyosung's total sales by two-fold, pushing it to rank as one of the top 10 conglomerates in South Korea.