Elpida Margin-Order Surge Shows Investors Bet Wrong on Government Bailout

Investors borrowed a record number of Elpida Memory Inc. (6665) shares even as it filed for bankruptcy, betting Japan’s last major maker of computer memory wouldn’t be allowed to fail. They faced a rout today as the stock plunged 97 percent after the Tokyo bourse removed limits on how far the price can move in a day.

Margin account holdings that profit when Elpida shares rise surged to 5.3 million shares yesterday, the most since Bloomberg began compiling the data in 2004. That’s an increase of almost 1.8 million from Feb. 27, the day the company filed for bankruptcy with liabilities of more than $5 billion, the data show. The stock, which will be delisted on March 28, plummeted 97 percent to 7 yen as of the 3 p.m. trading close in Tokyo.

“Individual investors are the main players in margin trading and some of these people were probably betting the government would somehow save the day,” said Hiroyuki Uekusa, general manager of trading at Meiji Yasuda Asset Management Co. “Now these people are in a hopeless situation.”

The last time the bourse removed the daily limit for a company, in September last year, developer Suncity Co. (8910) plunged 92 percent when it resumed trading. Suncity was delisted on Oct. 27.

Tokyo Stock Exchange Group Inc. imposes daily limits on how much stocks can move up or down depending on their closing price the day before. If the limits had remained in place, Elpida today would’ve been allowed to move down, or up, by a maximum of 80 yen.

Previous Rescue

Elpida filed for Japan’s biggest bankruptcy in two years after semiconductor prices plunged and it failed to win a second government rescue. The last Japanese maker of computer-memory chips, which lost money for five straight quarters, sought protection at the Tokyo District Court Feb. 27 with liabilities of 448 billion yen ($5.6 billion), according to a filing with Japan’s finance ministry.

The Tokyo-based company got a 30 billion yen bailout from the state-run Development Bank of Japan following a record loss in the 12 months ended March 2009.

“I didn’t expect such a direct announcement because Elpida had gotten money from the Development Bank of Japan and had applied for a government restructuring plan,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “The bankruptcy is another reason why people find it hard to buy Japanese stocks.”

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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