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 (27116)	12/13/1998 10:23:00 AM
From: Jeffrey D	Respond to of 70976

Chip wars in Korea. Jeff << South Korea Pressures LG and Hyundai To Merge -------------------------------------------------------------------------------- Dec 12, 1998 (Tech Web - CMP via COMTEX) -- The South Korean government, fed up with the unwillingness of Hyundai Electronics and LG Semicon to pull off their proposed merger, this week sent a strong message to the two companies: Work the deal out in two weeks, or you'll lose your bank credit and be forced to deal with creditors. Kyu-Sung Lee, South Korea's minister of finance, said at a political luncheon that he will intervene if the conglomerates, or chaebol, stall their scheduled restructuring, which includes the merger, according to Chi Luck Kim, president of the Korea Semiconductor Industry Association. And the government's Financial Supervisory Commission issued Hyundai and LG Semicon an ultimatum that their existing domestic bank loans and credit will be called in unless they come up with a chip merger by Dec. 25. Such a move would force both chaebol into "workout negotiations," a South Korean process designed to reach an out-of-court settlement with creditors on their massive debt, said Iksuk Han, a semiconductor analyst at ING Barings Securities, in Seoul. Hyundai and LG have battled for months to win control of the proposed chip combine. The government's U.S. consultant, Arthur D. Little, is slated to recommend one of the companies to run the new company. Spokesmen for both Hyundai and LG declined to discuss any aspects of the chip restructuring. Some analysts in South Korea suggested the two chaebol might prefer dealing with the workout negotiations if they could retain control of their respective chip operations. That could open the possibility of converting some or all of their huge debt load to equity in negotiations with domestic South Korean banks. The government previously has approved such relief for small to midsize companies, and this week opened the door for such debt-to-equity swaps to help the restructuring of the five biggest chaebol. Hyundai has an estimated debt-to-equity ratio of about 700-to-1, and LG is in the 600 range, compared with levels of 30 to 60 for U.S. chip makers. If the new chip merger were saddled with both partners' debts, it would start off nearly $14 billion in the hole, Han said. The South Korean government this week opened the possibility of approving debt-to-equity swaps for certain subsidiaries of the South Korean chaebol, but provided no details. Sources believe such conversions will involve giving creditors non-voting stock, which would leave the South Korean companies still in full management control. Getting rid of massive loans would also greatly lessen the high-interest payments with which the companies are now burdened. Reacting to the news of a potential bailout, rival memory-chip maker Micron Technology immediately told the U.S. Treasury Department that such relief for South Korean chip makers would violate terms of the International Monetary Fund's emergency financing package for that country. A $2 billion installment of the IMF bailout package is expected to be available soon, but the Treasury has failed to certify that the funds would not be funneled to the South Korean chip companies, which is mandatory under current funding law. However, it wasn't clear whether this was an administrative delay or related to the controversy over the chaebol's possible debt-for-equity swap. ING Barings' Han said he believed the South Korean government wasn't planning to approve any widespread debt-to-equity conversions, but would selectively agree to such deals where there appeared to be no other way for creditors to recover some of their loans. As the deadline nears for setting up the chip merger, both Hyundai and LG have been feverishly trying to strengthen their respective financial positions to win the vote of consultant Arthur D. Little to head the new company. LG spun off its FPD operations as a new company, taking $1 billion of debt off its chip subsidiary's books. In addition, the Seoul-based supplier is floating a stock issue this month in an effort to double the number of shares in the company. It isn't clear how much LG can raise with the new issue, but it complicates the merger. Hyundai, meanwhile, is seeking to spin off its telecommunications-equipment operations into a joint venture with Siemens AG. That could siphon off some of Hyundai's massive debt, as well as infuse an unspecified amount of funds from Siemens' investment. Ichon-based Hyundai also has come out with a huge stock offering that will boost its number of outstanding shares by nearly one-third. Some analysts said other divisions of the two chaebol may be the major buyers of the new stock issues. >>