* Issue to finance production upgrade, pay down debts
* Shares jump 5.2 pct after announcement
* Elpida expects 25 pct dilution if bonds are converted
* Japan's CB issuance rises for first time in four years
(Adds comments, details)
By Sachi Izumi and Taiga Uranaka
TOKYO, Oct 8 Japanese PC memory maker Elpida
Memory 6665.T said it will issue $729 million in convertible
bonds to invest in equipment and repay debt as it aims to better
compete with Samsung Electronics (005930.KS) and other rivals.
Elpida, the world's No. 3 maker of DRAM chips, joins a
growing list of Japanese firms issuing convertible bonds this
year, with issuance logging year-on-year growth for the first
time in four years, according to Thomson Reuters data.
Shares in Elpida reversed earlier losses triggered by media
reports of the bond issue and closed up 5.2 percent percent after
the official announcement. Volume spiked to nearly 19 million
shares, three times the daily average over the past three months.
"Investors initially reacted negatively to the news, but they
had finished digesting the news and decided to bet on Elpida's
agressive growth strategy to fight against Samsung," said SMBC
Friend Securities market strategist Hideaki Higashi.
"But it's still too early to buy up their shares because
Samsung is very competitive and it's not easy to catch up with
Elpida faces a tough battle against Samsung and Hynix
Semiconductor (000660.KS) in the DRAM (dynamic random access
memory) market at a time when weakening PC sales growth has been
It vies with U.S.'s Micron Technology (MU.O) for the No. 3
spot in the DRAM market.
Elpida has been expanding production in growing fields such
as mobile DRAM as well as entering the NAND chip sector and other
new areas to boost competitiveness in the crowded market.
Elpida had said on Thursday that it was looking at buying
shares in Taiwanese chipmakers, taking another stab at deepening
cross-border ties to fight together against South Korean rivals.
"It is key whether companies can increase their market share
when market conditions turn upwards, and this requires capacity
expansion," Mizuho Investors Securities analyst Yuichi Ishida
"From the global point of view, they are finally doing what
they should be doing," he said, adding Japanese chipmakers had
fallen behind rivals in the past because they tended to invest
when the market was strong but lost money when the silicon cycle
Elpida said in a statement it would use the proceeds to
upgrade its chip production capabilities and for research on
advanced chips, while using part of the money to pay back debts
and redeem straight bonds, a more costly form of funding than
It said last month it would start mass production of DRAM
chips using the 30-35 nanometre circuitry, putting it ahead of
Samsung in cutting-edge technology. [ID:nTOE68S00O]
Elpida is assuming a conversion price of 1,177 yen at a 32
percent premium to Thursday's closing price of 892 yen. The
number of shares outstanding would increase by 25 percent if all
the bonds are converted at that price.
Its stock had dropped by as much as 5.6 percent in the
morning to its lowest intraday level since April 2009 after media
reports of the planned bond issue.
Elpida's move puts this year's tally of convertible bond
issuance by Japanese companies at more than 400 billion yen.
Companies like Nidec Corp 6594.OS and Unicharm Corp (8113.T)
have also issued convertible bonds this year.
Daiwa Securities Capital Markets is the lead underwriter of
Elpida's issue. The bonds will mature in October 2015.
(Additional reporting by Mariko Katsumura and Junko Fujita;
Editing by Chris Gallagher and Joseph Radford)