As part of the rescue plan, several domestic, government-controlled Korean banks are leading a $2.3 billion debt for equity swap in the troubled DRAM maker. The banks, which hold the overwhelming share of Hynix debt, are part of an 18-bank group that could end up next year with stock ownership of 49% or more in the chip maker, far exceeding the 9% now held by former corporate parent Hyundai Group and its subsidiaries.

Foreign DRAM rivals, themselves under intense financial pressure as the electronics industry's slump drags on, were leery of how the Hynix bailout will fare. Vocal critic Micron Technology Inc. is pressing the U.S. Trade Representative and U.S. Treasury to lodge a protest with the World Trade Organization over what the company called unfair government subsidies. The European Union has threatened to file a similar complaint with the WTO.

"[This is] an unfair government subsidization of Hynix to keep a bankrupt company alive that otherwise should not be allowed to exist," said Jan du Preez, president of Infineon Technologies America, San Jose. "It distorts the market and puts the other largest DRAM manufacturers at an extreme disadvantage."

Hynix last week confirmed that the deal included a $2.3 billion exchange of debt for equity shares. Five domestic banks and Citibank N.A. of the United States also agreed to extend $500 million in additional loans, scaled back from the $770 million that Hynix had sought. The company's remaining debt, which amounts to about $4.2 billion, will be rolled over.

The Korean banks will receive convertible bonds that can be exchanged after May 31 for shares in Hynix at the market price of the stock at the time. The conversion price set last week was $2.38 per share, which would give the banks a 49% stake in Hynix. However, last week, Hynix was trading at about $1 per share, and any price on May 31 next year below the $2.38 target would give the banks, and by extension the Korean government, majority ownership.

The banks last week pledged to dispose of all the Hynix shares they acquire after Dec. 31, 2002, "in a timely and orderly manner." This would require selling off half or more of all of Hynix's shares at the time. But the trading in Hynix stock has become a wild affair even now, with 250 million shares, or one-quarter of the now-existing 1 billion shares, sold in a single day last week.

Farhad Tabrizi, vice president for worldwide marketing at Hynix in San Jose, played down the role of government-owned banks in the rescue package. "I don't think there's any connection in the refinancing agreement," Tabrizi said. "The banks are acting to protect their interests and to sustain Hynix."

Tabrizi added that despite their potentially dominant stake in Hynix, the banks have said they will not seek a management role in the company.

Five of the banks in the equity swap, which hold about 75% of Hynix's debt, have close ties to the Korean government. Two of those, The Korean Development Bank and the National Agricultural Cooperative, are government agencies, while a third, Hanvit Bank, is government owned.

Given the ties, a spokeswoman for Boise, Idaho-based Micron charged that the government-control-led banks are acting as a conduit to funnel taxpayer funds to Hynix. The spokeswoman said Micron "is watching very closely to see if the big debt-for-equity swap results in the government gaining a controlling voice in Hynix through the banks it also controls."

Tabrizi said the $500 million in fresh loans will be used for operating capital and to help upgrade Hynix fabs.

The company last week said it has started pilot production of its new 0.15-micron wafer line in Eugene, Ore. and expects to start full production in the first quarter of 2002.