Nov. 12 (Bloomberg) -- Hyosung Corp., the South Korean chemicals and trading company, said it abandoned a bid for Hynix Semiconductor Inc. because of speculation it received political favors to pursue the takeover.

Shares of Hyosung surged 15 percent, the most in a year, in Seoul trading after the world’s largest maker of tire- reinforcing materials said today “groundless” speculation had made it difficult to negotiate a “fair” acquisition.

Hyosung was the only one of 43 South Korean groups to bid for Hynix, a company four times its market value that has posted losses for seven of the past eight quarters. Korea Exchange Bank said creditors will resume their search for a buyer as they seek to recoup the $4.6 billion spent bailing out the world’s second- largest maker of computer-memory chips.

“There’s been concern that Hyosung’s purchase of Hynix may be too much of a financial burden without creating much synergy,” said Lee Jin Woo, a fund manager at KTB Asset Management Co. in Seoul who oversees the equivalent to $8.6 billion in assets. “The withdrawal lifted the concern.”

Park Seong Ae, a spokeswoman at Ichon, South Korea-based Hynix, declined to comment. Creditors will target a domestic buyer for Hynix, Korea Exchange Bank, the chipmaker’s largest shareholder, said in a statement.

Shares Surge

Finding a local buyer may prove to be difficult because of pending sales of other South Korean companies including Daewoo Shipbuilding & Marine Engineering Co. and Daewoo Engineering & Construction Co. Creditors plan to sell a controlling stake in Daewoo Shipbuilding “as soon as possible” and Korea Development Bank will select an arranger this year, Min Euoo Sung, the state-run bank’s chief executive officer, said today.

“It’s not going to be easy to find a different potential buyer since Hyosung was the only one interested initially,” Jay Kim, an analyst at Hyundai Securities Co., wrote in a note today. “Finding a new owner domestically isn’t likely to proceed quickly.”

Hyosung rose 15 percent to close at 79,100 won on the Korea Exchange. Before today, the stock had fallen 31 percent, the fourth-worst performer on the Kospi 200 index, since the company said on Sept. 22 it submitted a letter of intent to bid for Hynix. Shares of Hynix lost 1.8 percent to 19,600 won.

Lawmakers from the opposition Democratic Party have said that funds used by Hyosung Chairman Cho Seok Rae’s children to buy U.S. real estate were “suspicious in nature” and urged prosecutors to begin an investigation. A nephew of the chairman is a son-in-law of South Korean President Lee Myung Bak.

Real Estate Probe

Prosecutors are looking into the matter, Justice Minister Lee Kwi Nam, told lawmakers Nov. 9.

Hyosung, based in Seoul, has denied any wrongdoing and said the properties were acquired through personal wealth and the company’s funds weren’t used.

Hyosung, which has businesses ranging from fiber to chemicals and industrial machinery, earlier this month asked for a deadline extension to submit a preliminary offer for Hynix. Analysts at KTB Securities Co. and KB Investment & Securities Co. suspended their recommendations on Hyosung, citing “uncertainties” related to the Hynix acquisition.

“Hyosung’s financial structure isn’t sound enough to manage a Hynix purchase,” James Song, an analyst at Daewoo Securities Co., wrote in a note last month. Song had expected creditors to sell part of their stake to Hyosung or the company to team up with financial investors.

Financial Profile

Hyosung had total assets of about 6.3 trillion won and liabilities of 3.6 trillion won at the end of September, the company said Oct. 28. Hyosung’s debt-to-equity ratio stood at 135 percent, while its cash and cash equivalents were 149.7 billion won in the period, according to the company.

Hynix, which last month posted its first quarterly profit in two years on higher chip prices, had total assets of 16.2 trillion won and liabilities of 10.9 trillion won, including those of overseas affiliates, at the end of the third quarter.

“There are limited synergies between Hyosung and Hynix, and the former may not have the required financial muscle to complete the acquisition independently,” Harsh Agarwal, an analyst at JPMorgan Chase & Co., wrote in a report in September.

Hynix Chief Executive Officer Kim Jong Kap said last month a company that can make fast decisions and experienced in competing globally will probably have no problem in managing the chipmaker. He didn’t specify any names at the time.

Chip Prices

The price of the benchmark dynamic random access memory chip, which temporarily holds data and helps computer processors run multiple programs simultaneously, has almost quadrupled this year after falling 62 percent in 2008, according to Dramexchange Technology Inc., operator of Asia’s biggest spot market for semiconductors.

Hynix’s creditors agreed earlier this year to provide 1.3 trillion won in financial support for the chipmaker in a package that included selling new shares and extending the maturity of debt. That followed 500 billion won in fresh loans and an extension of Hynix’s debt maturity.

Korea Exchange Bank owns 6.4 percent of Hynix, while Woori Bank has 6.3 percent and Korea Development Bank holds 4.8 percent. Six other financial companies own the remainder. The sale is being arranged by Credit Suisse Group AG, Korea Development Bank and Woori Investment & Securities Co.

To contact the reporters on this story: Kevin Cho in Seoul at kcho2@bloomberg.netSeonjin Cha in Seoul at scha2@bloomberg.net

Last Updated: November 12, 2009 04:12 EST