Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (26987)	12/7/1998 3:33:00 PM
From: Duker	Respond to of 70976

<<But I'm willing to take instruction from my betters.>> Don't you mean bettors? --Duker

To: Gottfried who wrote (26987)	12/7/1998 4:25:00 PM
From: Proud_Infidel	Respond to of 70976

GM, I am not sure anyone could decisively say whether it is better to issue more shares since little is known at the moment. Excerpt from article:No details were available on the amount of debt that could be converted to equity or timetable for the transactions. BK

To: Gottfried who wrote (26987)	12/7/1998 4:35:00 PM
From: Will Lyons	Read Replies (1) \| Respond to of 70976

Gottfried It is not a matter of beeter or? By issuing stock for debt the company increases the number of shares and reduces the debt. the result is that the leverage is refuced so that the stock becomes less volatile but at the cost of increasing dilution. So if you want action ala the hedge fund that just went up in smoke becauseit was leveraged to the hilt then you want to keep ahigh debt/equity ratio. But if you want less risk you choose a stock in a co that has no debt [ and no long term leases either My time is nearlyup so if you want more please ask Regards Will

To: Gottfried who wrote (26987)	12/7/1998 8:41:00 PM
From: Peter Singleton	Read Replies (1) \| Respond to of 70976

Gottfried, Here's my fairly uninformed opinion ... : ) These companies have crushing debt loads. They are essentially, or close to, insolvent, and cannot pay their debt under any reasonable scenario. For the companies to have a chance of operating as a going concern, they have to get out from under those debt loads. For the banks to continue to operate, they have to writedown their uncollectable debt, and if necessary, recapitalize somehow. This is kind of a macroeconomic exercise, essential for the overall economy. I'm not sure how the existing equity holders fare under this scenario (and we don't have enough information). I suspect in the big picture, anything that keeps the company going and gives it a chance to get through the economic crisis benefits the equity holders, since they'll end up with a smaller part of an asset that's worth something. Peter

To: Gottfried who wrote (26987)	12/16/1998 9:50:00 AM
From: Katherine Derbyshire	Read Replies (2) \| Respond to of 70976

>>Is it better to issue more shares [thereby spreading the debt and causing the D/E ratio to drop]. Or would it be better to keep the number of shares the same, with a higher D/E?<< It depends. Debtors have a nasty habit of wanting their money back. Shareholders want earnings to grow so that they can sell their piece of the company for more money. The chaebols are in this mess because their debtors suddenly decided to ask for their money back. If you can't give debtors their money (which the Korean chaebols can't), and you owe them 5-10 times what the company is worth (which the chaebols do), you really have no choice but to try to turn them into shareholders with a stake in future growth. Maintaining a high D/E ratio under those circumstances isn't an option. But, once you've recapitalized yourself, the next step is to deliver the growth you promised, and to do it without employing the kind of huge leverage that got you in trouble in the first place. Once the chaebols get out from under their huge debt loads, they'll still have to completely rethink their measures of growth, focusing on earnings rather than market share or unit sales. Assuming they limit their borrowings to more reasonable levels, their ability to finance things like capital spending will be severely limited. Debt restructuring is a step in the right direction, but not a complete solution. Katherine