Chapter 400： target hynix

The South Korea Exchange Bank (KEB) is now faced with two options:

Liquidate the company; or try to revive Hynix through a massive creditor-led restructuring.

South Korea Exchange Bank chose the latter, for which it launched an ambitious restructuring plan under the South Korea Business Restructuring Promotion Act (CRPA).

The CRPA is part of South Korea's national plan to help companies recover from the financial crisis, and the law gives the Exchange Bank the right to appoint Hynix's management and lend Hynix $1.2 billion to complete reconstruction.

So Exchange Bank established a creditors committee to replace the Hynix board, and this committee is responsible for making all key decisions for Hynix.

Inside Hynix, Foreign Exchange Bank has set up a financial management team to supervise Hynix's cash income and expenditure.

In the end, Exchange Bank selected the list of directors of Hynix, of which Eui-JeiWoo became the CEO of Hynix.

Professor Woo joined Foreign Exchange Bank in 1967. In 2000, he was promoted to acting president of South Korea Foreign Exchange Bank. At this time, he was needed to save Hynix.

In the end, he led Hynix to execute the reconstruction plan and completed the reconstruction.

At that time, in order to improve Hynix’s debt situation and ensure its survival, South Korea Exchange Bank cancelled Hynix’s $8 billion debt to itself, achieving absolute control and easing Hynix’s debt pressure.

After that, Hynix and many semiconductor companies reached a strategic partnership and formed a semiconductor alliance, the most important of which is the cooperation with the European chip manufacturer STMicroelectronics.

At that time, STMicroelectronics and Hynix both aimed at the NAND flash memory market, but STMicroelectronics had strong proprietary design strength, but was not good at chip manufacturing; and Hynix, although strong in chip manufacturing, had no extra funds to build A new plant, so the two sides proposed to build a joint venture.

At this time, China is not only a huge market, but also pursuing higher chip manufacturing processes. The Chinese government has provided very attractive preferential conditions to attract foreign technology investment, and the production cost is also lower than that of other countries.

It is worth mentioning that after Hynix rejected Micron's acquisition offer, Micron sued Hynix in 2003 to the EU and the United States. The European Union and the United States have decided to impose 34% and 45% import tariffs on Hynix respectively because Hynix accepts bank subsidies controlled by the South Korean government. Hynix chose Huaguo to build a factory.

Because Xinwu had previously introduced Toshiba's DRAM production line and had experience in semiconductor production, the STMicroelectronics and Hynix memory chip factories, which were eventually valued at US$2 billion, landed in Xinwu, becoming the largest foreign technology investment in China at that time.

The Hynix Xinwu chip factory has two production lines, an 8-inch wafer production line with a monthly output of 50,000 wafers, and a 12-inch wafer production line with a monthly output of 18,000 wafers.

This time, Hynix invested 250 million US dollars in cash and equipment worth 250 million US dollars, and obtained 2/3 of the factory's production capacity, while STMicroelectronics accounted for the other 1/3. In this investment, Hynix spent only $250 million in cash to build a $2 billion factory and expand its state-of-the-art 12-inch capacity.

In November 2002, private equity and credit firm CVC Capital began communicating with Hynix, hoping to trade its non-memory chip business. Hynix rejected CVC's original 8 trillion won ($500 million) offer, negotiating directly with CVC chairman William Comfort.

As a result of the final negotiations, the offer price was raised from $500 million to $954 million—a figure that was roughly twice the book value of Hynix’s non-memory chip segment—and Hynix agreed to the deal, reducing the over $1 billion debt.

And CVC renamed the non-memory chip division to MagnaChip and brought it into the international securities market. CVC earned $750 million by issuing high-yield Yankee bonds, foreign bonds issued in the American market.

This time around, Hynix, KEB and CVC all benefited from the deal, and it made Fallon and Eui-JeiWoo realize that the high-yield bond market might offer Hynix a similar opportunity.

As a result, Hynix also began issuing bonds to refinance existing debt, initially planning to raise $1.8 billion in the market. At this time, Hynix has been losing money for 14 consecutive quarters, many debts are classified as non-performing loans, and many investors are not optimistic about the reconstruction plan.

In order to rebuild the relationship between Hynix and bond market investors, Hynix and its creditors agreed to give up more than 10% of the shares and put it into the market for financing.

Ultimately, the financing enabled Hynix to repay $1.2 billion of its CPRA debt, earning Hynix back market credibility.

As a result of the repayment of the CPRA debt, KEB's Council of Creditors was dissolved and the Board of Directors re-established - in other words, KEB Bank once again returned to its shareholder status and no longer directly manages Hynix.

KEB's fund management team also subsequently withdrew, giving Hynix more management autonomy and capital use authority.

In 2008, Columbia University Business School invited Fallon and Eui-JeiWoo to give a lecture, calling the Hynix experience "the largest and most successful Asian corporate restructuring ever."

In 2006, with the opening of the Xinwu chip factory, Hynix occupied a large slice of the NAND flash memory business that took off, with a net profit of more than US$2 billion that year, setting a new record for Hynix's profits.

However, the matter is not over yet, otherwise, there would be no possibility of William Chen's acquisition of Hynix now.

Before Professor Woo retired from Hynix in 2007, he asked his successor to be selected from Hynix's current management.

Unfortunately, creditor KEB did not follow his advice and instead appointed Kim Jong Gap, a former minister from the South Korean Ministry of Trade, Industry and Energy, as his successor, under whose leadership Hynix began aggressive capacity expansion.

In July 2007, Admiralty announced that Hynix plans to significantly increase the output of 300 wafers to make Hynix the world's leading chip maker.

To this end, Hynix has migrated a lot of investment to 56, 36nDRAM and 48nNAND flash memory production lines.

Although Jin Zhongjia's ambitions are big, he ignores the volatility of memory chip prices.

In 2007, memory chip prices began to fall. In September, the price of standard 512MB DDR2 DRAM chips dropped by more than 70% from the beginning of the year, and the price of DRAM chips, which were originally $5.95/chip, dropped to $1.75/chip.

This was supposed to be a warning that Hynix was spending too much on investment. With low chip prices, Hynix can barely cover its production costs and loan interest, and can't get more financing. Still, Admiralty continues its aggressive capital spending plans.

This has led to growing dissatisfaction among seasoned executives within Hynix, who know that high debt in the past has nearly destroyed the company. Now, they have to watch Hynix's debt levels rise again.

By the fourth quarter of 2008, the price of memory chips had not recovered yet, and Hynix had to start a new round of negotiation with banks due to the liquidity crunch.

In order to survive, Hynix requires increased new equity capital and deferral of bank debt, which will significantly increase Hynix's debt level.

Ironically, a company that worked so hard to deleverage its balance sheet is now facing mounting debt Hynix management seems to be ignoring the hard lessons of 2002-2006 .

In December 2008, Hynix announced that it would cut spending on expanding its factory in South Korea, postponed a $260 million investment plan to expand its factory in Xinwu, China, and closed its 200-chip manufacturing plant in Eugene, Oregon.

In January 2009, major creditor banks in South Korea announced that they would provide 500 billion won (about 443 million U.S. dollars) in new loans, 300 billion won (about 266 million U.S. dollars) in new equity, and more than 1.8 trillion won (about 266 million U.S. dollars). approximately $1.6 billion) in the extension of existing debt.

This provides Hynix with a certain amount of liquidity to withstand the price decline of memory chips. But this did not let Hynix get rid of losses. Since 2007, Hynix has been losing money for three consecutive years.

In 2010, Jin Zhongjia's term of office expired. After the recommendation and voting of six creditor banks including KEB, Quan Wuzhe became the new CEO of Hynix.

However, at this time, with the outbreak of the subprime mortgage crisis, Hynix faced greater financing difficulties, and the market continued to shrink, and the price of memory continued to fall. Therefore, it has been delayed until now. The crisis has eased, but due to the sharp deterioration of the global economic situation, the debt has continued to increase.

If last year, or even earlier this year, if Chen William wanted to acquire Hynix, he might have encountered a lot of resistance in South Korea, but now Hynix's situation has deteriorated to an unmanageable level, and a large number of In the case of capital injection to save its bankruptcy, it is possible to get rid of this burden and ensure the stability of its employees. I am afraid that even a foreign acquisition is something that South Korea can accept.