Hynix Shares Slump in Seoul on Concern SK Telecom Stake Sale May Collapse

Hynix Semiconductor Inc. (000660) fell to the lowest level in three weeks in Seoul trading on concern the sale of a 20 percent stake in the chipmaker will collapse after the last likely bidder became entangled in a probe by prosecutors.

SK Telecom Co., the South Korean mobile-phone operator that indicated it may bid for Hynix, yesterday denied allegations that the founding family of the SK Group of companies had embezzled funds.

Hynix shares fell 2.5 percent to 21,500 won on the Korea Exchange as the fourth attempt in two years to unload the stake teetered. Shareholders including state-owned Korea Finance Corp. want to offload a stake they gained through a government-led bailout in 2001 while SK Telecom has been looking to expand into the $39 billion-a-year market for computer-memory chips to take on Samsung Electronics Co.

“Concerns that SK may pull out, coupled with continued weakness in chip prices, are battering the stock today,” said Han Sang Soo, a fund manager at Samsung Asset Management Co. in Seoul, which oversees about $30 billion. “If SK steps out, I think investors should prepare for further drop in share price.”

The deadline set by Hynix shareholders for bids is 5 p.m. local time today. The Seoul Prosecutors’ Office searched the offices of some SK Group affiliates on Nov. 8 to investigate allegations that funds had been misappropriated. Chairman Chey Tae Won will prove his innocence, the group said in an e-mailed response to questions from Bloomberg News the same day.

Futures Investments

Yonhap News reported that prosecutors have been investigating Chey since May to determine if he used money from SK companies to reduce personal losses from futures investments.

SK Telecom hasn’t yet made a decision on whether to submit a bid today, said Irene Kim, a Seoul-based spokeswoman for the carrier. Lee Sun Hwan, a spokesman at Korea Exchange Bank, which is leading the sale, said the mobile phone company hasn’t notified shareholders about its plans.

Hynix had a market capitalization of 13.1 trillion won based on yesterday’s closing price. If the 20 percent stake shareholders want to sell fetches 2.6 trillion won, it would rank the share sale as the largest for a Korean technology company since 1999, according to data compiled by Bloomberg.

SK Telecom’s interest in Hynix renewed concerns South Korean business groups known as chaebol were reviving practices of over-expansion that led to the financial crisis in the late 1990s, Shaun Cochran, head of Korea research at CLSA, said in July.

Chaebol Model

While supporters praise the chaebol for pulling the country out of poverty after the 1950-1953 Korean War and transforming it into Asia’s fourth-largest economy, the International Monetary Fund cited the debt-driven chaebol model as part of the reason the nation’s economy landed in a financial crisis at the end of 1997.

The probe into Chey comes less than four years after South Korea’s highest court reaffirmed a suspended sentence for him. In May 2008, the Supreme Court upheld a suspended three-year prison term for fraud.

The deadline for bids for Hynix was extended twice after STX Group, which had submitted a preliminary bid along with SK Telecom in July, pulled out in September. STX at that time cited global economic uncertainties and concerns over investments needed to keep the chipmaker competitive as the reasons for the pullout.

Hynix had a net loss of 562.6 billion won in the third quarter amid an industry downturn, after posting record sales and profit in 2010. The chipmaker reduced debt by more than 1 trillion won last year.

Share Prices

In the days following SK Telecom’s announcement it may bid, analysts at CLSA, Morgan Stanley, JPMorgan Chase & Co. (JPM) and Samsung Securities Co. cut their ratings on the stock, while Daishin Securities Co., Daiwa Securities Group Inc. and Nomura Holdings Inc. (8604) lowered their price estimates.

SK Telecom fell 0.3 percent to 152,500 won, extending its decline this year to 13 percent. Hynix, which is in its fourth- straight day of declines, has dropped 12 percent in 2011.

Fitch Ratings said in September if SK Telecom buys the stake with debt, “the company’s credit strength may be impaired,” echoing Standard & Poor’s July statement that the purchase would undermine the phone company’s credit rating.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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