America's Road to Fame

Chapter 401 Target Hynix

At this time, the South Korean Exchange Bank (KEB) faced two choices:

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

The KEB opted for the latter, and to this end, the KEB launched an ambitious restructuring plan under the South Korea Corporate Restructuring Promotion Act (CRPA).

The CRPA, part of South Korea's state program to help companies recover from the financial crisis, gave KEB the power to appoint Hynix's management and lend it $12 billion to complete its reconstruction.

So KEB set up a creditor committee to replace Hynix's board of directors, and this committee was responsible for making all key decisions for Hynix.

Within Hynix, KEB has set up a financial management team to oversee Hynix's cash receipts and expenditures.

In the end, KEB elected Hynix's board of directors, with Eui-Jei Woo becoming Hynix's CEO.

Professor Woo joined KEB in 1967. In 2000, he was promoted to acting president of KEB. At this time, he was needed to save Hynix.

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

At that time, in order to improve Hynix’s debt situation and ensure its survival, South Korea’s Foreign Exchange Bank wrote off Hynix’s 80 billion US dollars of debt to itself, achieving absolute control, and also eased Hynix’s debt pressure.

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

At that time, both STMicroelectronics and Hynix were targeting the NAND flash memory market, but STMicroelectronics was strong in proprietary design, but not good at chip manufacturing; and Hynix, although strong in chip manufacturing, had no extra funds to build Therefore, the two parties proposed to build a joint venture.

At this time, Huaguo is not only a huge market, but also pursuing higher chip manufacturing technology. The Huaguo government has provided very attractive preferential terms to attract foreign technology investment, and the production cost is also lower compared with other countries.

It is worth mentioning that after Hynix rejected Micron's acquisition offer, Micron sued Hynix to the European Union and the United States in 2003.The European Union and the United States decided to impose 34% and 45% import tariffs on Hynix because of the bank subsidies controlled by the South Korean government, and the establishment of a joint venture in China can avoid paying these high taxes, which further prompted 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 worth 20 billion US dollars were finally established in Xinwu, which became Huaguo’s largest foreign technology investment at that time.

Hynix Xinwu chip factory has two production lines, one 8-inch wafer production line with a monthly output of 50000 wafers, and the other 12-inch wafer production line with a monthly output of 18000 wafers.

本次海力士投入2.5亿美元的现金和价值2.5亿美元的设备，获得了工厂2/3的产能，意法半导体则占据另外1/3。在这次投资中，海力士仅花费2.5亿美元现金就建设了价值20亿美元的工厂，还扩充了最先进的12英寸产能。

In November 2002, private equity and credit company CVC Capital began communicating with Hynix, hoping to trade its non-memory chip business.Hynix rejected CVC's original offer of 11 trillion won (about 8 million U.S. dollars), thereby negotiating directly with CVC chairman William Comfort.

As a result of the final negotiations, the offer price was increased from US$5 million to US$9.54 million-a figure that is approximately twice the book value of Hynix's non-memory chip division, so Hynix agreed to the deal, reducing the cost by more than US$2 billion. debt.

And CVC renamed the non-memory chip division MagnaChip and brought it into the international securities market. CVC made $7.5 million in proceeds from the sale of high-yield Yankee bonds (foreign bonds issued in the U.S. market).

This time, Hynix, KEB and CVC all benefited from the transaction, and at the same time, it made Fallon and Eui-Jei Woo realize that the high-yield bond market may provide similar opportunities for Hynix.

As a result, Hynix also began to issue bonds to refinance existing debt. At first, the company planned to raise US$18 billion in the market.At this time, Hynix had lost money for 14 consecutive quarters, and many debts were classified as non-performing loans. Many investors were 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 them into the market for financing.

In the end, the financing enabled Hynix to repay the CPRA debt of 12 billion US dollars, which won Hynix back the market reputation.

Due to the repayment of CPRA debts, KEB's creditor council was dissolved and the board of directors was re-established - in other words, KEB Bank returned to its shareholder status and no longer directly managed Hynix.

KEB's fund management team subsequently withdrew, giving Hynix more management autonomy and access to funds.

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

In 2006, with the opening of the Xinwu chip factory, Hynix took a large piece of cake in the soaring NAND flash memory business, and achieved a net profit of more than 20 billion US dollars that year, creating a new high for Hynix.

But the matter is not over here, otherwise William Chen would not be able to acquire Hynix now.

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

Unfortunately, creditor KEB did not heed his advice and instead appointed Kim Jong-gap, a former minister from South Korea’s Ministry of Trade, Industry and Energy, as his successor. Under his leadership, Hynix began an aggressive capacity expansion.

In July 2007, Jin Zhongjia announced that Hynix plans to significantly increase the production of 7mm wafers in order to make Hynix the world's leading chip manufacturer.

To this end, Hynix has migrated a large amount of investment to 56, 36nm DRAM and 48nm NAND flash memory production lines.

Although Jin Zhongjia has great ambitions, he ignores the fluctuations in the price of memory chips.

2007年，存储芯片价格开始下跌。9月份，标准的512MB DDR2 DRAM芯片的价格从年初下降了超过70%，原本5.95美元/片的DRAM芯片售价降到了1.75美元/片。

This should have been a warning that Hynix's investment spending was too high.In the case of low chip prices, Hynix can hardly pay its production costs and loan interest, nor can it obtain more financing.Still, Admiralty is continuing with its aggressive capex plan.

This has fueled growing discontent among experienced executives within Hynix, who know that high levels of debt in the past 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, and Hynix was also trapped in a liquidity crunch, and had to start a new round of contacts with banks.

In order to survive, Hynix requires new equity capital and the extension of bank debt. For this reason, Hynix's debt level will increase significantly.

Ironically, for a company that had worked so hard to deleverage its balance sheet and now faces 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 its $12 million investment plan to expand its factory in Xinwu, Huaguo, and closed its 2.6mm chip manufacturing plant in Eugene, Oregon.

2009年1月，南朝鲜主要的债权银行宣布将提供5000亿韩元（约合4.43亿美元）的新贷款，以及3000亿韩元（约合2.66亿美元）的新股本，以及将超过18000亿韩元（约合16亿美元）的现有债务延期。

This provides Hynix with a certain amount of liquidity to withstand the decline in the price of memory chips.However, this did not allow Hynix to get rid of losses. Since 2007, Hynix has suffered losses for three consecutive years.

In 2010, Jin Zhongjia's term of office expired. Kwon Woo-cheol became the new CEO of Hynix after recommendation and voting by six creditor banks including KEB.

However, at this time, with the outbreak of the subprime mortgage crisis, Hynix is ​​facing greater financing difficulties, and the market continues to shrink, and memory prices continue to fall. Therefore, it has been delayed until now. Not only has Hynix not under the leadership of the new CEO, The crisis has eased, but because of the sharp deterioration of the global economic situation, debts continued to increase.

If it is said that last year, or even earlier this year, Chen William might encounter a lot of resistance in South Korea when he wanted to acquire Hynix, but now the situation of Hynix has deteriorated to the point that it is difficult to deal with it, and a large number of them must be purchased. In the case of capital injection to save its bankruptcy, it can get rid of this burden and ensure the stability of its employees. I am afraid that even if it is a foreign acquisition, it is something that the South Korean side can accept.

(End of this chapter)