Elpida Memory wants another bailout

December 29, 2011

Elpida Memory Inc., the world’s third-largest dynamic random access memory (DRAM) maker, plans to file for a second public bailout amid fears it may be unable to pay back loans it already owes the government, sources said.

The filing would fall under the law on special measures for industrial revitalization and innovation.

The concern that the DRAM maker may not be able to meet its obligations stems from its weakening earnings position amid the European debt crisis.

With the loan repayment due in April, Elpida will step up negotiations with the industry ministry for an extension of the due date. The company also intends to put together a business restructuring plan as early as January.

Following the collapse of U.S. investment bank Lehman Brothers in fall 2008, Elpida, the only DRAM manufacturer in Japan, received 30 billion yen ($386 million) in public funds via the Development Bank of Japan under the revitalization law in June 2009. Megabanks and other private banks also chipped in a combined 100 billion yen to help bail out the maker.

The DRAM maker posted a company record 178.9 billion yen in net losses in fiscal 2008, but returned to profitability in fiscal 2009. In this fiscal year, however, the bearish economy fueled by the European crisis significantly drove down DRAM prices.

With the continued strong yen further hammering the company’s balance sheet, Elpida recorded a deficit of 56.8 billion yen in September, the midyear period of fiscal 2011. The manufacturer held only 100 billion yen in cash and deposits at the end of September.

When the current status under the revitalization law expires in March--automatically depriving the company of government support--Elpida will face huge loan repayment obligations in April and subsequent months.

With the possibility that banks may refuse to provide another injection of cash, Elpida may default on its debt.

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