Shares of Powerchip rally on loan rollover hopes


CNA

TAIPEI — Shares of Powerchip Technology Corp., one of Taiwan’s memory chip makers, staged a rally yesterday and outperformed the broader market on hopes that its creditor banks will roll over its debt, dealers said.

Optimism rose after Finance Minister Lee Sush-der told lawmakers Monday that the government would offer reasonable financial assistance to local dynamic random access memory (DRAM) chip firms, which remain haunted by a down cycle in the industry and plummeting prices, they said.

At the end of trade, Powerchip had closed up 7 percent, the maximum daily increase, to NT$1.31. The index of the over-the-counter market, where the stock is listed, fell 0.87 points to 104.26. According to Powerchip, its loans are scheduled to mature in mid-December, and it has sought approval from the government to roll over its debt for one more year to help the company cope with its financial woes.

In addition, the company said it intended to dispose of its non-core assets, including real estate and equity holdings, in an attempt to lower its debt burden.

“With the presidential election approaching, I don’t think the ruling Kuomintang party wants to see a bankrupt Powerchip, which would hurt the odds of its winning the poll next year,” Horizon Securities analyst Benson Huang said.

“Many investors are betting the government will approve the loan rollover application for another year after the election is over,” Huang said.

“A loan rollover will not only prevent an immediate default by Powerchip but also reduce the government’s political headache.”

According to Huang’s estimate, Powerchip has at least NT$40 billion in debt, much of it accrued from massive losses due to the decline of the global DRAM business.

Huang said more than 20 banks, most of which are government invested, are Powerchip creditors. Taiwan Cooperative Bank is the company’s largest creditor with outstanding loans of about NT$5.7 billion.

The analyst said investors were buying Powerchip shares now simply for trading purposes after recent heavy losses.

“The global DRAM sector is unlikely to have an immediate turnaround as product prices continue to fall amid oversupply,” Huang said.

“Although Powerchip has repeatedly claimed it has made dramatic structural changes by shifting to the foundry business, it needs to come up with evidence that its bottom line is improving,” he said.

In the first nine months of this year, Powerchip posted a net loss of NT$13.26 billion, compared with NT$12.21 billion in net profit a year earlier.