Elpida secures gov't approval for emergency fund injection

+

TOKYO, June 30 Kyodo -
Struggling chipmaker Elpida Memory Inc. secured government approval Tuesday to
receive 30 billion yen (about $312 million) in emergency investment under a new
financial aid program introduced amid the global recession.
Elpida, the world's third-largest and Japan's sole maker of dynamic random
access memory chips, will aim to maintain its global competitiveness through a
financial package totaling 160 billion yen in bank loans and additional
investment including from its Taiwanese technology partner.
The move came despite warnings that the government must be careful about
getting involved in rescuing private-sector companies since such rehabilitation
efforts, if they fail, will only cause heavy burdens on taxpayers.
Elpida became the first recipient under the program after it sank into the red
for two straight years on erosion of chip prices and shrinking demand for DRAM
chips, used mainly in mobile phones and personal computers, amid the recession.
''We decided that an injection of public funds would be best for us,'' in order
to secure cash to invest in cutting-edge chip technology, Elpida President
Yukio Sakamoto said at a press conference in Tokyo. ''If we lose our investment
capacity, we will be cast aside in DRAM competition.''
Elpida will use the fresh funds to upgrade its production equipment and raise
output efficiency at its DRAM plant in Hiroshima Prefecture in a bid to narrow
the gap on rivals in South Korea and the United States. It will also shift
manufacturing of some products abroad to Taiwan.
The 30 billion yen in de facto public funds will come via the state-owned
Development Bank of Japan in August, while the DBJ will also lend some 10
billion yen to Elpida, the Ministry of Economy, Trade and Industry said.
Elpida, based in Tokyo, will also receive some 100 billion yen in syndicated
loans from commercial banks, including the Bank of Tokyo-Mitsubishi UFJ.
It will also obtain about 20 billion yen in investment from Taiwan Memory Co.,
a memory chip company set up by the Taiwanese government, which has agreed on a
technology partnership with the Japanese manufacturer.
Sakamoto said TMC is seeking about a 10 percent stake in Elpida and the
Japanese manufacturer is also considering buying a stake in the Taiwanese
partner, though adding that both firms would not become majority stockholders.
Analysts said Elpida will need access to all possible means including public,
private and foreign cash in order to remain viable in an industry, which
Sakamoto warns will eventually be consolidated into two or three players.
''It's hard to say whether this will be enough to turn around its business
performance, but the funds are sufficient to avert short-term cash flow
problems and credit risks,'' said Haruo Sato, a senior analyst at Tokai Tokyo
Research Center Co.
The emergency program, part of Prime Minister Taro Aso's economic stimulus
measures, is intended to help improve the financial health of companies widely
regarded as strategically important to Japan.
The government has determined that Elpida's failure could have a negative
impact on the wider economy, including on manufacturers to which the struggling
chipmaker supplies crucial components, industry minister Toshihiro Nikai said
at a news conference.
''Elpida faces a very tough environment,'' Nikai said. ''DRAMs are widely used
by major industries in our country, and securing a stable supply of them will
benefit people's lives as well as economic and industrial activity.''
Under the program, the government requires Elpida to compile and implement a
rehabilitation plan and to report to the ministry on progress in its revamping
efforts at least every quarter.
Through its investment, the DBJ will acquire preferred shares in Elpida, and
depending on the progress of the rehabilitation plan, the government-affiliated
bank will withdraw its investment.
In the event of the failure of such investment, the government says it will
cover 50 to 80 percent of the losses incurred by the DBJ with tax money,
despite critics warning that rescuing firms that should normally be culled is a
moral hazard and impedes industrial streamlining.
''It would not be good if we see the government increase its intervention to
protect certain companies. Such a policy could only delay necessary
realignment,'' said Hiromichi Shirakawa, chief economist at Credit Suisse in
Japan.
Nikai admits that the latest rescue program is subject to such criticism.
''We're using national expenditures, so we must be aware of our
responsibility,'' he said.
And for Elpida, the main task will be to produce better earnings results before
its deadline in spring 2012.
''I want to continue until Elpida can produce stable profits,'' Sakamoto said.
''I'll fulfill my management responsibility by returning our earnings to
previous levels.''
==Kyodo