Taiwanese DRAM maker ProMOS Technologies has offered to buy back convertible bonds from holders at a fraction of their value after admitting it simply does not have enough money to repay the full amount.
The company on Friday offered US$100 for every US$1,000 in convertible bonds the holders put up for the offer.
The issue is a US$350 million overseas unsecured convertible bond that had a clause allowing holders to redeem it on Feb. 14, 2009 if they chose to do so. Holders applied to redeem a total of US$326.9 million worth of the bonds. The bonds ultimately stand to mature in 2012.
In a statement, the company spelled out its bleak financial situation. ProMOS has very little cash on hand and much of its property, including factories, land and production lines, is already being used as collateral on other debt.
The company currently has NT$200 million (US$5.78 million) in cash, it said in a filing to the Singapore Exchange, where the bonds are traded. Last December, ProMOS missed of NT$850 million in payments on other debt, it said, and has NT$19.2 billion of payments to make in 2009.
The chip maker has applied to the Taiwan government for help in gaining a 12-month extension on repayment of 2009 debt.
ProMOS had NT$85.9 billion (US$2.48 billion) in outstanding debt on its books as of the end of last year, including NT$58.9 billion of senior debt backed by production line equipment, property and plants, as well as NT$27.0 billion in unsecured debt.
The US$350 million bond falls in the category of unsecured debt, meaning it is not backed by property. Should bond holders take legal action, which could prompt a bankruptcy filing by ProMOS, they would be near the back of the debt repayment line, said one analyst.
The only way ProMOS was able to raise money to make the tender offer to bond holders on Friday was through an NT$3 billion bank loan which was secured by NT$15 billion worth of property.
ProMOS estimates that the total value of its property, including factories, land and production equipment, is NT$130 billion. Of that amount, NT$72.7 billion is already being used as collateral for debt, not including the NT$15 billion used to back the recent bank loan.
The remaining amount of property the company holds that has not been used to secure loans is manufacturing equipment and plants.
"In our experience, the current market for sale of second-hand manufacturing equipment is difficult given the overall semiconductor industry conditions," the company said in the filing.
DRAMeXchange Technology, the chip clearinghouse and market researcher, the global revenue for DRAM makers plunged 40 percent in the fourth quarter of 2008, compared to the prior quarter as the price of DRAM fell. The company blamed slow demand for much of the decline, in addition to currency exchange rate changes. Prices of the main DRAM chip used in computers fell to a low of US$0.58 in mid-December, from $1.25 in early October.
DRAM makers globally have suffered from a chip glut that started almost two years ago, causing most of them to post a series of losing quarters. The global recession has furthered their problems by hurting demand for major products that use DRAM, such as PCs and servers.
ProMOS hopes to work out an agreement with a major DRAM maker such as Elpida Memory of Japan, which has discussed forming an alliance with Taiwanese chip makers.
However, should the tender offer to pay 90 percent less than the face value of the convertible bonds fail, ProMOS said it will continue to seek alternative solutions and warned that it will pursue every legal avenue available to the company "in response to any legal action initiated by creditors."
The bonds are governed by the laws of the state of New York, though they are listed in Singapore.