Shareholders and former creditors of Hynix Semiconductor (000660.KS: Quote, Profile, ReSEOULsearch, Stock Buzz) have agreed to let the world's No.2 memory chip maker raise up to $519 million in a rights offer, knocking its shares down 8 percent before a late rally.

While a rights offer could hit shares in the short-term, analysts said it may signal a revival in a sector that has been battered over the past two years by its toughest downturn ever.

Jay Kim, analyst at Hyundai Securities, said a latest round of fund-raising was likely aimed at financing future investment in a semiconductor industry that requires massive, steady spending to fund technological advances, while a previous round earlier this year had addressed Hynix's desperate cash needs.

The news is negative (for Hynix shares), but only for the short term, said Kim, adding that a rights offer so soon after Hynix's January fund-raising could fuel investor concern over its debts. [ID:nSEO15735]

In a client paper, UBS noted Hynix was the most indebted company in the computer memory chip sector, with $4.6 billion in net debt at the end of the first quarter. It maintained a sell rating and a price target of 6,200 won on Hynix shares, less than half their current level.

On Tuesday, smaller memory chip maker Micron Technology Inc (MU.N: Quote, Profile, Research, Stock Buzz) launched a $450 million offering of common stock and convertible senior notes. [ID:nWNAB1623]

Hynix said it would need a formal go-ahead from shareholders before raising any funds. There has been no specific decision yet, the company said.

Park Yong-jin, spokesman for Korea Exchange Bank (KEB) (004940.KS: Quote, Profile, Research, Stock Buzz), a major Hynix shareholder, said on Thursday that shareholders and former creditors of the chip maker had agreed to the fund-raising plan, but had not yet made any final decision.

Hynix shares fell more than 8 percent in early trading on worries of a stock dilution, but recovered to close up 0.7 percent in a wider market .KS11 that advanced 4.3 percent.

NASCENT HOPES

Expectations of a meaningful recovery in dynamic random access memory (DRAM) chips, which power personal computers, have been stoked by a recent improvement in spot prices and the prospect that the weakest players could soon exit the market.

Germany's Qimonda (QMNDQ.PK: Quote, Profile, Research, Stock Buzz) filed for insolvency in January and the Taiwan government is seeking to restructure its moribund chip industry. [ID:nTPU001280]

Shares of Hynix, a company that has racked up huge quarterly losses but has retained a significant technological edge over smaller rivals, have more than doubled from near 5-year lows hit in late November. The stock was trading well above long-term price targets set by most analysts.

But not everyone buys into the recovery scenario.

DRAM contract pricing remained unmoved during the first half of April and has barely changed since the beginning of 2009, UBS said in its note distributed on Thursday.

Although we see scope for a limited rise in contract pricing this quarter, we do not expect this to be significant or sustained. We retain a cautious sector view. (Additional reporting by Rhee So-eui and Shin Ji-eun; Editing by Ken Wills & Ian Geoghegan)

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