Samsung secures $16 bn loan from display unit for chipmaking

South Korea's Samsung Electronics Co., the world’s largest memory chipmaker, has signed a deal to take out a cash loan of 20 trillion won ($15.8 billion) from its subsidiary Samsung Display Co. to fund semiconductor manufacturing facilities.

The loan equals 10.4% of the chipmaker’s equity as of end-2022. It will repay the installment loan from Feb. 17, maturing until August 2025 with an annual interest rate of 4.6%, the company said in a regulatory filing on Tuesday.

Last year, Samsung Electronics injected 47.9 trillion won into the semiconductor sector out of its 53.1 trillion won total investment in manufacturing facilities.

The company will continue to expand foundry, or contract chipmaking facilities, both in Pyeongtaek, Gyeonggi Province in Korea and Taylor, Texas.

Despite the sharp industry slowdown, the company said last month it has no plans to cut semiconductor production as it expected demand for DRAM, high-capacity memory widely used in computers, to recover thanks to the growing artificial intelligence industry. 

“Interactive AI services such as ChatGPT based on natural language processing technology are expected to have a positive impact on memory chip demand in the future,” Kim Jae-joon, Samsung Electronics’ vice president for the memory chip business, said at the time.

The chipmaking giant spent its operating profits, rather than borrowing capital from subsidiaries, to finance local production facilities.

But it has decided to take out a loan from the display unit due to the gloomy outlook for 2023. The chipmaker's operating profit is forecast at 15 trillion won this year, 34.6% of the figure in 2022, according to investment banking sources.

Most of the company’s cash and cashable assets, worth more than 100 trillion won, are owned by its US affiliates. The management has determined to borrow capital from its local subsidiary, instead of taking a US loan at a high interest rate, sources said.

The lender, Samsung Display, enjoyed record profit last year thanks to its supplies to Apple Inc.'s iPhone 14 Pro.

On Jan. 31, the display maker reported an operating profit of 6 trillion won in 2022, up 33.4% from the previous year, with sales rising 8.4% to 34.4 trillion won. Its operating profit margin stood at 17.3%, the highest among all Samsung Electronics units.

Write to Jeong-Soo Hwang at hjs@hankyung.com

Jihyun Kim edited this article.