Will Hyundai, LG, SK bid for Hynix?

By Kim Yoo-chul

Major shareholders of Hynix Semiconductor are making their third attempt to sell their combined 15 percent stake valued at around 3.4 trillion won in the world's No. 2 supplier of computer memory chips after Samsung Electronics.

The sale is considered a ``hot issue’’ in the global semiconductor industry.

Though the Korea Finance Corporation (KoFC) and the Korea Exchange Bank (KEB) are reviewing various options including an issuance of new shares with the aim to bring in more investors, the outlook is quite uncertain.

The two form the biggest stake-holding team.

``Still, the market seems doubtful that the stake sale process will immediately make a break through,’’ said a top-ranking industry executive, asking not to be identified.

The stakeholders are set to invite bidders as early as this month. KEB said an agreement has been made to give various options to a potential buyer.

``This time would be different because Hynix has proved its ability to create revenue and secure its bottom line regardless of the industry’s cyclical ups and downs,’’ said the executive.

James Kim, vice president for investor relations at Hynix, declined to comment.

Hynix graduated from a debt-rescheduling program from creditors in 2001.

A previous auction of a 28 percent stake in 2009 fell through when Hyosung dropped its bid claiming lack of synergy with its existing businesses.

The long-term credit rating of Hynix has improved to A- from a previous BBB+.

``Hyundai-Kia, SK, LG and Hyundai Heavy are considered potential buyers. Any of these four could be expected to create synergy with their key businesses,’’ said another high-ranking banking source on condition of anonymity.

Despite denials by LG Group Chairman Koo Bon-moo, the industry believes that LG needs to acquire at least some portion of Hynix stakes as LG identified chips-put businesses such as solar-cells as a new growth engine.

LG Electronics has been buying some 3 trillion won worth of chips from Hynix yearly and senior company executives hold business meetings on a regular basis.

``As far as I know, LG has a keen interest in learning whether or not Hynix has the capability to better handle system LSI biz. LG Electronics will be able to expand its corporate scale in the highly-competitive consumer electronics segment if it obtains some portion of Hynix,’’ added the source.

An LG Group spokesman Jung Jeong-wook said the business group hasn’t changed from its earlier position, while an LG Electronics spokesman Yoon Won-il declined to comment.

Hyundai-Kia is also considered a candidate as the automotive group has been strengthening is parts-related divisions, especially for chips used in vehicles.

But a lack of proven capability in non-memory businesses is cited as the main drawback, according to market watchers.

Hynix is putting more resources on sharpening its edge in memory chips driven by the rising popularity of memory-embedded consumer gadgets such as smartphones, tablets and high-performance televisions.

SK Group was getting attention and some insiders say top SK executives have internally begun reviewing the case, though a SK spokesman was not ready to confirm this.

SK’s key businesses are mostly domestic market-oriented.

SK Telecom is the nation’s top mobile carrier, while SK Innovation is South Korea’s top-tier oil refiner.

So far SK has failed to yield any visible results in the United States and in Asian countries. Recently, SK dropped its bid to buy U.S.-based video rental firm Blockbuster.

``Because SK has shifted its focus on Chinese markets with special attention on electric vehicles, buying Hynix would be one option in its business strategy,’’ said another industry expert.

Hynix runs a chip factory in Wuxi, Jiangsu Province, with full financial support and key Chinese politicians have already paid their rare visits to inspect its lines.

Shareholders have also left open the possibility of inviting foreign funds as strategic investors.

The Advanced Technology Investment (ATIC) of Abu Dhabi, the government investment vehicle behind Globalfoundries, signed an MOU with the Korea Semiconductor Industry Association (KSIA) in January 2010, in which the two parties agreed to explore potential areas of collaboration in the semiconductor industry.

A significant investment in Hynix was not discussed at the time, but was not ruled out, sources with knowledge of the agreement said.

``It could make a lot of sense for foreign funds to participate in the race as strategic investors,’’ said another banking source.

The stake sale comes as the global market for memory chips is showing a sign of gradual recovery from last year’s slump.

The first quarter was impressive for Hynix.

It posted first quarter revenue of 2.79 trillion won, up 2 percent from the previous quarter, but down 1 percent from a year ago.

Net income for the quarter was 274 billion won, a hike of 812 percent from the previous quarter.

``The second quarter will be even better for Hynix. With Samsung, Hynix has emerged as the chipmaker which can beat cyclical fluctuations thanks to its technology advancements,’’ said Lee Seung-woo, an analyst at Shinyoung Securities.

Hynix is currently able to handle the ultrafine 40-nanometer-level processing technology. In chips, thinner is better as a chip with thinner tech can cram more capacity and thus cut manufacturing costs.