BOE Invests in Supply Chain Fund

BOE Invests in Supply Chain Fund
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​China’s largest panel producer BOE (200725.CH) will invest ~$47.1m (4.29% stake) in a fund being created by the Beijing government.  Each of the partners below will contribute their capital share in 5% increments as needed by the fund over a 4 year investment period and a 4 year exit period (which can be extended), although the withdrawal mechanism will depend on IPOs, technology transfers, M&A, etc.  The fund manager will get a 2% yearly fee of the investment amount, while the limited partners will receive 8% compounded interest.  80% of the profits (called surplus), if any, will be allocated to the limited partners, with the remaining 20% to the GP.

​The boilerplate indicates that the fund will act as a link between the BSCOM (#1) and BOE, generating ‘the synergy effect’ to ‘create a complete industrial supply chain based on display, sensing, artificial intelligence and big data’, while creating no new competition (for BOE).  While the text is the familiar blather attached to such documents, it would seem that the fund is just another way in which the Chinese government funds the display industry.  Aside from the construction subsidies and infrastructure projects that have been supplied to all of China’s display projects and the operating subsidies that allow for capacity expansion projects (in some cases the difference between a profitable and a loss year), such state funds are used to build out upstream projects without burdening display companies themselves. 
While the limited partners all look relatively legitimate, we expect there is considerable pressure put on potential investors given their partial or full state-ownership., sort of a Godfather request, with such the Beijing government collecting yearly fees on all.  It seems a bit unfair to promote the success of the Chinese display industry knowing that it would not have been anywhere as successful if it had to have developed on its own, but such is life in a socialist republic.  We, on the other hand, encourage companies to build in the US by offering local tax breaks while partisan politics does little to actually provide help to industries that keep US leadership alive in the CE space.  Luckily local taxpayers don't seem to mind and local politicians fade away before any reconciliation comes due.  All is fair in love and war…
Fund Limited Partners:

1. Beijing State-owned Capital Operation Management Co (State)   57.13%  State-owned Investment Mgt.
2. China Telecom Group (601728.CH)                                                       12.86% State-owned
3. Beijing Urban Construction Group                                                           5.71%    State-owned construction
4. Beijing Xianlong Asset Management                                                       5.71%    State –owned property management , Labor services
5. Beijing BBMG Group                                                                                   5.71%    Technology development 44.1% owned by #1
6. BOE Technology                                                                                          4.29%
7. Beijing Automotive Group                                                                         2.86%    State-owned automobile manufacturing
8. Beijing Automotive Industry Investment Group                                    2.86%    100% owned by #7
9. Beijing International Technical Cooperation Center                            1.43%    Technology promotion – 100% owned by #1
10. North Huachuang Technology Group                                                     1.43%    IC & TFT assembly equipment – Owned by a BOE Director
11. General Partner                                                                                           0.01%    See #1

Back on August 1`9, we noted that BOE had raised $3.14b  by selling shares in a private placement for a variety of projects including the ramp to production and capacity expansion of its new Gen 6 flexible OLED fab in Chongqing.  At the time we noted BOE’s top 10 shareholders which we duplicate here, with the focus on shareholder #1, who tops the list above, giving even more indication that the investment made in the abovementioned fund was less of a suggestion than a hopeful request.