It was not too long ago that Taiwan’s now-gloomy D-Ram memory chip and flat panel industries were seen as the ‘twin stars’ of the island’s technology manufacturing sector.
So after the government stepped in three years ago to try to restructure the D-Ram industry, it is only fitting that it is now lending a hand to help Chi Mei Innolux, the island’s biggest flat panel maker and a subsidiary of Hon Hai, the world’s biggest electronics contract manufacturer.
Chi Mei said on Thursday that it has reached a deal with its creditor banks – led by the state-run Bank of Taiwan – after seeking help on the debt restructuring from the ministry of economic affairs. Under the deal, Chi Mei would be able to push back repayment on its syndicated loans by two to three years. The banks have agreed to delay repayment of some short-term loans.
Chi Mei, like many other flat-panel makers, have been hit hard by the global slowdown in demand for televisions. This put it in dire financial straits – Chi Mei had net losses of T$64.76bn (US$2.2bn) last year. Before Thursday’s deal, the company was due to repay debts of T$177bn this year but only held T$58bn in cash as of late last year.
Tuan Hsing-Chien, Chi Mei chair and chief executive, said:
“The debt extension agreement entered by Chimei Innolux and the bank consortium is reflective of the financial industry’s continuous recognition and support of CMI’s past efforts and future plans for the TFT-LCD business… [Chi Mei] will continue to exert its full efforts in planning and implementing improvements in its business operations, finances, research and development and marketing initiatives.”
The fact that Chi Mei was able to buy time from its creditors will no doubt come as a relief to Hon Hai, which became the second-biggest shareholder in the company after Chi Mei merged with Innolux, a Hon Hai subsidiary, in 2009.
Investors and analysts had widely expected that, had the government not stepped in to help, Hon Hai would act as a lender of last resort for Chi Mei. Hon Hai’s board had, in fact, last week approved a plan to increase its stake in Chi Mei over the next three years as the flat panel maker issues new shares to raise financing.
But Hon Hai had only last week announced plans to take a 10 per cent stake in Japan’s Sharp, with Terry Gou, Hon Hai’s chair, also putting up his own money to take a stake in one of Sharp’s flat panel plants in Japan. Couple that with the need to again increase pay for its workers in China after committing improving conditions as part of an audit by the Fair Labour Association, and there are a lot of places where Hon Hai needs to spend its money.
Not having to put money on the table immediately for Chi Mei will be one less thing for Gou to worry about.-by Robin Kwong