* Hynix shareholders to re-start sale process - KEB
* Hyosung walks away; shares jump 15 pct
* Hynix size, cyclical business are hurdles for sale
* KEB seeks local buyer; Hynix R&D seen as 'strategic'
* Sale may clash with other state assets on the block (Adds comment, analysis, updates shares)
By Marie-France Han and Rhee So-eui
SEOUL, Nov 12 Leading shareholders of South Korea's Hynix Semiconductor (000660.KS) will restart the sale of a controlling stake in the world's No.2 memory chip maker, valued at close to $3 billion, after the sole bidder pulled out.
Failure to find an owner could leave major shareholders with little option but to sell Hynix shares on the market, as they have in small parcels in the past, inevitably denting its share price.
Hyosung (004800.KS), a mid-tier conglomerate with no experience in the memory chip business, said on Thursday it was withdrawing from the process, claiming market rumour and a misunderstanding of its intentions had made a fair acquisition process impossible.
Korea Exchange Bank 004940.KS, Hynix's largest shareholder, said the sale process would be re-started, adding it would target South Korean buyers as Hynix's technology is of strategic importance. Hynix boasts considerable technological advances over its Japanese and Taiwanese rivals.
However, a kickstarted sale is likely to come up against a rash of other South Korean assets hitting the market.
State-owned Korea Development Bank said it would restart the sale of Daewoo Shipbuilding & Marine Engineering (042660.KS) next year -- a signal that South Korea is speeding up the sale of state assets as it seeks to fund growth supporting policies. [ID:nSEO374140] Resource company Daewoo International (047050.KS) and engineering powerhouse Daewoo Engineering (047040.KS) are also on the block, potentially competing for interest in Hynix.
And the government is lining up a raft of other state assets to sell by 2012. [ID:nSEO303606]
Shares in Hyosung jumped by their 15 percent daily limit to a 7-week high, and trade in the stock was nearly six times its 90-day daily average.
Hynix initially jumped more than 6 percent to its highest in four weeks as relieved investors welcomed the end of what had always seemed an unlikely bid.
Hyosung -- which translates as 'morning star' -- was founded in 1966 as a small chemical fibres maker and, while it has grown into a mid-tier conglomerate employing 17,000 staff making tyres, packaging and industrial equipment, it is far smaller than Hynix and had no experience in making computer memory chips.
The group's closest connection to the tech industry is in its ownership of an automatic teller machine (ATM) business.
A Hyosung spokesman said the group had approached the deal from a business perspective, but found it impossible to go on amid criticism of its qualifications to run the chipmaker and speculation about political favours.
Lee Min-hee, an analyst at Dongbu Securities, said the sale process was now back to square one.
"The likelihood is high that (Hynix) shareholders will continue to sell down their stake, perhaps by 6-7 percentage points, through next year while the sale process goes on," said Lee Min-hee, an analyst at Dongbu Securities.
A Hynix spokesman had no comment.
KEB and other former creditors who had rescued Hynix after the Asian financial crisis a decade ago had put up for sale around a 28 percent stake in the chipmaker. But only Hyosung showed any interest.
Concerns about the price, the need for heavy investment and a brutally cyclical chip business were the biggest hurdles for potential buyers.
Hynix, however, has this year emerged from a severe downturn and is set to return to profit over the next few years as the memory chip cycle swings upwards.
Last month, Hynix, which ranks behind only Samsung Electronics (005930.KS) in memory chips, reported its first net profit in eight quarters and predicted a brighter outlook as strong demand and rising prices boost the chip sector's recovery.
Spot prices of dynamic random access memory (DRAM) chips, used mainly in PCs, have more than doubled over the past year.
Samsung posted record quarterly profit in July-September and forecast a strong 2010, while smaller rival Japan's Elpida Memory 6665.T also reported its first operating profit in eight quarters on improved prices and demand.
Hynix has acknowledged the need for a decisive owner. CEO Kim Jong-kap said last month the company would benefit from having an owner with a global focus and speedy decision-making ability.
But analysts remain sceptical that Hynix can make a successful marriage, saying it's more likely to become largely public-owned, like world No.4 steelmaker POSCO (005490.KS) which is not part of a large conglomerate.
"Like POSCO, Hynix could very well end up as a strategically important company, widely held by the public," said Peter Yu, an analyst at BNP Paribas.
While strong ownership, strategic vision and deep pockets would be ideal, Hynix management is very competitive, Yu said.
"Long-term vision can make a difference for an industry in its early stages, (but) the memory industry is in a mature phase and can really be run by professional managers."