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UPDATE 3-Japan's Elpida to raise $844 mln, seeks to reboot

Published 09/01/2009, 07:12 AM
Updated 09/01/2009, 07:15 AM
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* Share issue means up to 39 pct dilution of common shares

* With preferred share issue, dilution could reach 56 pct

* Elpida now aims for capital ties with TMC by March

* Ups 2009/10 capex target by Y5 bln to Y45 bln

* Shares close up 5.6 percent ahead of announcement (Adds broker, share information in paragraphs, 10, 11)

By Mayumi Negishi

TOKYO, Sept 1 (Reuters) - Elpida Memory Inc, Japan's sole maker of PC memory, will issue new shares to raise up to 78.5 billion yen ($844 million) as it seeks to adopt new technologies and struggles with debt in a battered chip sector.

Elpida, which is chasing bigger South Korean rivals Samsung Electronics and Hynix Semiconductor, said on Tuesday it will use the funds to help make faster and energy-efficient chips and to help repay some of its debt.

The issue of up to 55 million new shares could lift the number of common shares at Elpida by 39 percent, and analysts said it could mean a 56 percent dilution, if preferred shares it issued the previous day were to be converted.

The company, which vies with U.S. chipmaker Micron Technology for the No.3 slot in the global DRAM industry, received pledges from its creditors and partners for a 160 billion yen lifeline in June, and its suppliers also invested 46 billion yen in the company in April.

"I don't expect any further capital raises," Deutsche analyst Takeo Miyamoto said, noting that Elpida was not building new factories soon and would likely switch to next-generation lines gradually.

Elpida held an extraordinary shareholders' meeting on Saturday to change its bylaws to allow it to issue 3 million preferred shares and an additional 100 million common shares.

Hurt by seven straight quarters of losses, the company then skirted questions about whether it needed to raise any more money, just three days before announcing the public share offer.

"That could be problematic from an ethical standpoint, but then there is this argument: do you take the criticism and raise money, or go under without raising funds?" Miyamoto said.

Elpida had outstanding interest-bearing debt of 556.9 billion yen at the end of June, making its net debt four times that of its equity.

The company said it will issue 5 million new shares in Japan and 43 million shares overseas, with an overallotment of 7 million shares, from between Sept. 24 to Sept. 28, with Morgan Stanley as the lead underwriter.

Elpida's shares have quadrupled since hitting a record low in November, after it announced a bond issue to raise 50 billion yen. Before Tuesday's announcement, they closed up 5.6 percent at 1,537 yen, outperforming the flat Nikkei average.

The previous day, it issued 30 billion yen worth of preferred shares to the state-backed Development Bank of Japan as part of the 160 billion yen aid package.

Elpida also said that it now expects to receive an investment of 20 billion yen from technology partner Taiwan Memory Corp (TMC) by March next year.

Elpida has been in talks with TMC, set up by the Taiwan government to save its own chip sector, about issuing shares to each other. Each would take a stake of less than 10 percent in the other, they had said.

RAT RACE

Elpida, created from the once high-flying dynamic random access memory operations at NEC Corp, Hitachi Ltd and Mitsubishi Electric Corp, hopes to resume its chase of bigger rivals Samsung and Hynix for market share.

With DRAM prices now recovering break-even levels, the chipmaker aims to invest in new equipment. It raised its capital spending plan to an expected 45 billion yen in the year to March, up from a forecast made in August for 40 billion yen.

Elpida is hurrying to shift to 45-nanometre production lines, which would yield faster and more power-efficient chips, boost output and cut per chip costs.

Converting its entire cutting-edge factory in Hiroshima, western Japan, to 45-nanometre lines would cost roughly 100 billion yen, it said. ($1=93.05 Yen) (Editing by Joseph Radford and Elaine Hardcastle)

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