By ALBERT CASTRO

Ayala Corp. unit Integrated Microelectronics, Inc. (IMI) yesterday said it has booked $23.2 million loss in hedging contracts betting that the peso will continue to be strong.

Aside from the booked loss, roughly equivalent to P1 billion, IMI is also allocating another $10.3 million (P448 million) in mark-to-market losses for another hedging contract it has entered into which has yet to mature.

The company is now preparing a P1.3 billion capital call to cover the losses.

Jaime Zobel de Ayala, CEO said Ayala is will to give more than its share in the equity call to help IMI.

"IMI’s business fundamentals and prospects remain strong. IMI is evaluating a variety of opportunities to expand its geographic footprint and enhance its capabilities organically or through acquisitions. Ayala has been committed to supporting IMI’s initiatives and remains excited by its growth prospects. We are prepared to subscribe to more than our proportionate share in the equity call as part of our desire to support the company in its growth initiatives irrespective of this unfortunate currency position loss," added Zobel de Ayala.

Ayala said that IMI executed a program to hedge its peso expenses starting in 2007 when the peso was appreciating.

"The change in the macro-economic environment and the peso volatility has unfortunately affected the hedging position made by IMI. The Board of Directors of IMI has agreed to put in place a short-term program to correct such position by June 30. This is an unfortunate turn of events but we believe that this step helps put an end to any risk exposure the company faces from its past position," said Ayala CEO Jaime Augusto Zobel de Ayala.

Gina Oriz, IMI said, "IMI’s entered into the currency hedging to protect the company’s dollar-denominated revenues in relation to the company’s recorded profit in peso.

Given the continuing decline of the dollar to the peso then, hedging was one of the best means the company has to protect the value of the dollar to the peso.

The company’s operation however remains sound said Oriz, clarifying that the reported loss was due to terminating the costs the company has to service in cutting short the terms of some of the hedging contracts the company has signed in.

Oris said the company is currently studying to also terminate the remaining contracts it currently holds. The contracts run between 6 - 12 months.

IMI’s revenues grew 15 percent in the first five months of 2008 compared with the same period last year due to increases in sales volume and average selling prices to key customers.

Gross profit margin was ahead of target with the consignment business accounting for 42 percent of total revenues. Excluding the hedging losses, IMI’s net income as of May 2008 improved by 48 percent year-on-year.

"If the peso continues to depreciate until the end of the year, IMI’s profitability will further improve, partially offsetting the hedging losses. IMI’s balance sheet is strong with total assets of USD325 million and total debt of only $67 million as of May 31, 2008," IMI said.

Ayala meanwhile said the IMI board of directors also approved yesterday a program to call additional equity from its shareholders.

Ayala treasurer Luis Manotok said the company is looking to generate between P1.2 billion to P1.3 billion from the equity call.

The proceeds from the equity call will be used to support IMI’s expansion plan.

IMI currently has five factories in China, one in Singapore, and three in the Philippines — three in Laguna, and one each in Cavite and Cebu. It also has two design centers in US and the Philippines.

Ayala owns 68 percent of IMI. Ayala’s pro-rata share of the realized and mark-to-market losses will be reflected in the second quarter financial statements of Ayala.