Hynix debt swap could spur US trade war

By Staff and reports

SEOUL, Korea -- Creditors of South Korea's cash-strapped Hynix Semiconductor are considering a debt-for-equity swap, a move that could spur a U.S. trade war.

In a strongly worded statement to Korea's minister of commerce, industry and energy, U.S. commerce secretary Donald Evans said that Korea's financial support to "sustain Hynix has been of significant concern to the United States."

The letter added that these actions call into question Korea's "obligations under the World Trade Organization," the Financial Times reported.

'WTO violation'

Creditors led by Korea Exchange Bank were meeting Wednesday to discuss how to help the indebted chipmaker.

A recent $4 billion rescue package worked out by creditors and $1.25 billion in new equity were designed to end Hynix's funding woes but falling chip prices have sent the company back to lenders in search of help.

"As Hynix cannot even pay interest from operating funds, steps to lower its financial burden such as cutting interest rates and swapping debt for equity are those mostly likely to benefit the chipmaker," said an unnamed official at Kookmin Bank

The South Korean government holds significant stakes in Hynix's creditors including Korea Development Bank, Korea Exchange Bank, Hanvit Bank and Chohung Bank, according to an FT report.

Hynix rival Micron Technology, a U.S.-based D-Ram memory chipmaker, told the FT "The Korean government will end up owning Hynix and we will press on with our trade complaint. This is a clear violation of WTO trade regulations."

Micron Technology is asking the WTO to curb Hynix chip imports with the use of high tariffs.

The debt-for-equity swap, if approved, could also anger overseas investors who bought into a $1.25 billion global depositary receipt issue in June.

Hynix GDRs have fallen 40 percent in value since then.

On credit watch

On Tuesday, Hynix's uncertain financial standing had prompted credit rating agency Standard & Poor's Corp to put Hynix on CreditWatch with negative implications.

Hynix had $5.2 billion in current liabilities at the end of June including $966.5 million in debt maturing in the second half of the year.

The Korean chipmaker had $519 million of funds to meet those pending debts.

Hynix produces 4 percent of South Korea's total exports and is one of the country's several debt-laden companies that the government is under pressure to restructure.

Hynix shares in Korea rallied four percent on Wednesday, on hopes the rescue package would soon receive approval.

Reuters contributed to this report.