On June 2, China’s biggest contract chip manufacturer, Semiconductor Manufacturing International (SMIC), filed for a listing in Shanghai. Based on that listing, the company aims to raise around 20 billion yuan (US$2.8 billion) on the Nasdaq-style Star Market. The announcement comes as the United States looks to make business more challenging for China’s technology companies.
Despite the increasing trade wars between China and the US, SMIC aims to enhance the chip technology investment. Current market conditions may compel the company to take on more production.
The Hong Kong-listed company withdrew its American depositary receipts (ADRs) from the NYSE in 2019. An official statement in a listing prospectus from SMIC said that the company plans to use 40% of the proceeds to create its latest 12-inch SN1 chip. Additionally, 40% of the funds would also be used to replenish capital, while the remainder will research and develop advanced technologies.
In May, the company got a $2.2 billion investment from state investors to fund the expansion of a Shanghai facility. The investment came in as China seeks to become self-reliant in the sector of semiconductors, a field in which the country is far behind the US. However, these efforts have been struck as Washington increases its technology war with Beijing.
If successful, the offering would become the Star Market’s biggest to date. A fund manager with Shanghai Shiva Investment, Zhou Ling, said:
“The Star Market is now playing its role as a strategic fundraising platform to bolster its own technology companies as the US-China relationship worsens.”
SMIC got approval from regulators for a separate listing on Shanghai’s high-tech STAR market on June 1.
The SMIC Listing
SMIC aims to float 1.686 billion shares in the market. The prospectus listing stated that the company plans to offer these shares at around 11.9 yuan apiece, a 30% discount to its H shares traded in Hong Kong. These shares gained 1.5% to HK$18.46 (US$2.38) on June 2.
SMIC is China’s dominant semiconductor factory and a major chip maker that the Asian country is looking to support. Beijing is investing in the technology sector as President Trump’s administration aims to curtail China’s rise in the technology industry.
SMIC plans to expand its plant’s capacity from 6,000 14-nanometre wafers a month to 35,000.
The US Severe Measures Against China
Recently, the US Department of Commerce implemented drastic measures to thwart China’s plans of becoming a world leader in the tech space. The US set a new law stating that all chip makers using semiconductor manufacturing equipment manufactured by American firms are prohibited from supplying chips to Huawei Technologies.
SMIC is convinced that the US rule posed a significant risk to its business since it will reduce its sales and output considerably. The company was established in 2003. Over the years, it has managed to become a formidable rival to Taiwan Semiconductor Manufacturing Company (TSMC), but it lags in terms of production capabilities and technological development.
China is now injecting massive capital amounts and giving tax incentives to support the local chip manufacturers. The moves come to rescue an industry that is facing strangulation by the American government and the business community.
The Shanghai Stock Exchange launched the Star Market in July 2019 following an order by President Xi Jinping. President Jinping encouraged the creation of a fundraising platform for upcoming technology firms. The firms that would benefits must be operating in artificial intelligence, chip making, and biotechnology spaces.
SMIC decided to delist from the New York Stocks Exchange in May 2019. The delisting came due to thin trading volumes coupled with Washington’s increased restrictions on Chinese technology firms. The firm decided to go for the Shanghai listing after China eased stock market listing requirements. Also the move was inspired by tax breaks and funding to local chip producers targeting sell-sufficiency by China’s government.