February 17, 2009, 9:43 AM — A consortium of eight banks led by the Bank of Taiwan reached a tentative agreement to loan DRAM maker ProMOS Technologies the money it needs to make payments on a convertible bond, the bank said in a statement late Monday.
The deal, should it be made final, would ensure ProMOS's survival past a major bond redemption this week and keep DRAM prices from rising. Last month, German DRAM maker Qimonda filed for bankruptcy protection, sending DRAM prices up over 25 percent in a week. DRAM makers have suffered from a nearly 2-year downturn caused by a chip glut, and many companies have posted losses for at least a year.
The Taiwanese banks plan to loan ProMOS NT$3 billion (US$88.2 million), a smaller figure than the NT$5 billion ProMOS was seeking. The deal will not be finalized until boards of directors at each bank approve their respective portion of the loan.
The Bank of Taiwan has pledged NT$700 million of the total amount.
ProMOS needs the cash to pay up to US$330 million in expected redemptions of a convertible bond. The redemption was originally due to begin on Feb. 14, but since that date fell on a Saturday, it was delayed. Since Monday was a U.S. holiday, the redemption officially began Tuesday. ProMOS has seven days to make the payments.
Late Tuesday, ProMOS said a hefty 97.4 percent of holders have asked the company to redeem their bonds, accounting for just over US$326.9 million. ProMOS has until Feb. 24 to make the payments, the company said in a statement to the Taiwan Stock Exchange. The bond in question is a US$350 million overseas unsecured convertible bond the company sold on Feb. 14, 2007. The bond had a clause allowing holders to redeem them in exactly two years if they chose to do so.
Failure to meet the payment schedule could leave the chip maker with few alternatives but to seek protection from its creditors, analysts say. ProMOS has already lobbied business partners and the Taiwan government for funds to help it through this crisis, and only this eleventh-hour deal with banks may have saved the day.
A few forces may be compelling the banks to help ProMOS, analysts say. For one, the Taiwan government pledged late last year to help domestic DRAM makers by working with banks to delay loan repayment schedules and ease lending.
The banks may also have made the loan to keep a major borrower afloat. ProMOS held NT$89.5 billion in debt owed to Taiwanese banks as of the middle of last year, according to an estimate by the island's economics ministry. Were ProMOS to file for insolvency, the repayment of those loans would be jeopardized.