TAIPEI – Semiconductor Manufacturing International Co.’s Shanghai 46.3 trillion yuan ($ 6.55 trillion) share offering will help the Chinese chipmaker seize a “precious opportunity” in the world’s largest domestic semiconductor market, its president said Monday.
SMIC’s intention to list up to 25% of its shares on the Shanghai STAR market would make it the largest capital offering in mainland China in a decade. It will help the contract chipmaker’s investment firepower as it tries to increase competition with its rivals, including Taiwan Semiconductor Manufacturing Co. and Samsung Electronics.
At the proposed price of 27.46 yuan per share, it would value the Beijing-backed chipmaker at approximately 196 billion yuan, or $ 27.75 billion, placing it among the top five technology stocks in the country by market capitalization.
The offer surpasses plans promoted last month for SMIC to raise around 20 billion yuan, and comes after an increase in the value of SMIC’s Hong Kong-listed shares. They jumped 13% in Hong Kong to a new record on Monday and have tripled in value this year.
SMIC could also increase the number of shares on offer, in which case it would raise 53.2 billion yuan ($ 7.55 billion), according to its regulatory filing with the Shanghai Stock Exchange. It would be the largest share offering in China since the Agricultural Bank of China in 2010.
The offer comes at a time of increasing tension between China and the United States over technology, which has made Beijing more determined to increase the country’s self-sufficiency in semiconductor production.
It would also stimulate interest in STAR, which opened a year ago, aspiring to become a “Chinese Nasdaq” as the headquarters of the national technology sector to increase equity.
Zhou Zixue, president of SMIC, said on Monday on an online investor tour that the listing was a “great milestone” for the company and “the entire Chinese capital market.”
Zhou said China was now the world’s largest semiconductor market and that SMIC needed to tap more sources of financing and increase its production capacity to take advantage of a “precious key opportunity.”
In its exchange presentation, SMIC said 29 strategic investors would participate in its offer, including the China Integrated Circuits Industry Investment Fund, dubbed the “Grand Fund,” the country’s largest financing vehicle for planting the industry. chip.
Others include the state-backed China Information and Communication Technology Group; GIC Private Limited, the sovereign wealth fund of Singapore; and Abu Dhabi Investment Authority, another great wealth fund.
SMIC obtained regulatory approval for listing in just 19 days, demonstrating how enthusiastic China is in helping the company become a national chip champion. The listing is expected to take place this month.
The contract chipmaker is a beneficiary of Beijing’s desire to reduce dependency on foreign suppliers, sparked by Washington’s crackdown on several key Chinese tech companies, including Huawei Technologies, ZTE and Hikvision.
SMIC plans to raise $ 6.55 billion in what would be the largest initial public offering on the Shanghai STAR market. (AP source photos)
Huawei has switched some mid-range to low-end chips to SMIC and has asked its other chip suppliers to switch manufacturing to China, the sources told the Nikkei Asian Review, helping to boost the business of local chip makers.
SMIC has more than doubled its capital expenditures to $ 4.2 billion by 2020 in a move to increase its technological capacity, while reporting better-than-expected gains in the first half of 2020. In 2019, SMIC generated $ 3.12 billion in revenue, compared to $ 3.36 billion in 2018.
SMIC was previously listed on the New York Stock Exchange, where its share trading was low, but was removed from the list last year.
The United States is stepping up regulatory scrutiny of Chinese companies. In May, the U.S. Senate passed a bill that could prohibit many Chinese companies from listing stocks on U.S. exchanges or collecting money from U.S. investors, unless they allow U.S. authorities to audit their financial statements for three years. consecutive and demonstrate that they are not controlled by any foreign governments
SMIC, which was founded in 2000 and has Huawei, Goodix, Qualcomm and many local Chinese chip developers as customers, is China’s greatest hope of challenging market leaders, including TSMC and Samsung.
While its technology lags behind TSMC, SMIC has been hiring industry veterans from its competitors. His co-CEO since late 2017 is Liang Mong-song, a former executive at TSMC and Samsung.
TSMC is the number 1 player in the so-called foundry market, that is, it makes chips for other companies like Apple and Huawei. It has a market share of more than 50%, according to data from research company TrendForce. SMIC had about 5% of the market for the April-June quarter.
In its offering prospectus, SMIC has pointed out many business risks ranging from technology gaps with market leaders to geopolitical tensions and potential problems in obtaining foreign chip production equipment and materials. For example, Washington’s decision to require non-US chip providers to apply for licenses if it uses US tools to supply Huawei, SMIC’s key customer, could have a significant business impact.
“The impact of export control regulations is not immediately clear … however, trade frictions between the United States and China could limit our ability to serve certain customers and lead to a reduction in orders,” SMIC said in your prospect. “Our company still relies heavily on foreign chip production materials and core chip production equipment.”
The shipment of advanced chip-making equipment from ASML, based in the Netherlands, Europe’s largest maker of chip equipment, to SMIC was suspended due to US pressure, Nikkei reported last November.
Other Chinese chip-related companies have also recently come forward to list on the STAR Market, including Bestechnic, a key new Bluetooth chip company, and Cambricon Technologies, a Beijing-backed artificial intelligence chip developer. Both are key suppliers to Huawei.
One of China’s essential goals in establishing the STAR board last year was to improve access to capital for the country’s strategic chip makers.
Roger Sheng, a Shanghai-based analyst at research company Gartner, told the Nikkei Asian Review that the SMIC case showed the Chinese government’s commitment to persuade more national tech innovators to stay home.
“In the near future, given the conflicts between the United States and China, it is inevitable that Chinese technology companies will definitely slow down their listing in the United States,” Sheng said. “The Shanghai STAR Market – the Chinese version of Nasdaq – [would] be a magnet for these players. “
Additional reports from Narayanan Somasundaram in Hong Kong
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