SK Hynix proposes to finance Toshiba chip deal via bond issue: sources

SK Hynix Inc has proposed that its financing for a Japan government- led group bidding for Toshiba Corp’s chip unit be done through convertible bonds, according to two sources familiar with the matter, potentially allowing it to have an equity interest in the world’s No. 2 NAND chip producer.

Such an arrangement would likely hurt the consortium’ s efforts to cl inch a deal, despite being designated as the preferred bidder last month with an off er of about 2 trillion yen ($ 18 billion). Japan’s government wants to keep the chip business under domestic control and has been wary of allowing foreign companies to access Toshiba’s memory technology.

SK Hynix plans to buy convertible debt in a special purpose company being created by Bain Capital for the Toshiba acquisition, said one of the sources, adding that terms were still being negotiated.

Toshiba CEO Satoshi Tsunakawa has repeatedly said that SK Hynix won’t hold any equity in the chip unit and won’t be involved in management. Such an arrangement is unlikely to raise regulatory red flags and would prevent leaks of key technology information, he said.

The current proposal of the preferred bidder consortium has raised concerns as sources familiar with the matter said that the Innovation Network Corp of Japan, would hold the biggest equity interest despite putting up only 300 billion yen.

Bain plans to put up 850 billion yen, half of that to be provided by SK Hynix in the form of financing.