SMIC Buying SMIC
China’s largest foundry Semiconductor Manufacturing International Corporation (688981.CH), aka SMIC, is purchasing the remaining 49% of SMIC North, making it a wholly-owned subsidiary. SMIC is issuing new shares to the minority owners of SMIC North at 74.20 yuan ($10.42 US), which cannot be less than 80% of the average price over the last 1209 days, according to Chinese regulations. It seems that aside from other considerations, the minority shareholders, some of whom have been involved with SMIC North since the company was founded in 2013 are looking for an exit. We believe the largest minority shareholder is the National Integrated Circuit Industry Investment Fund Co., Ltd., known as the "Big Fund", along with at least these four other state entities - Beijing Integrated Circuit Manufacturing and Equipment Equity Investment Center (Limited Partnership), Beijing Yizhuang International Investment Development Co., Ltd., Zhongguancun Development Group Co., Ltd., and Beijing Industrial Development Investment Management Co., Ltd.
SMIC says they are making the purchase to recover profitable assets, as SMIC North’s production lines are fully depreciated and fully utilized, which will now be attributable to SMIC, raising its ‘profile’, and giving it full control over those assets (although we expect it has had full control since inception). SMIC North is a 12” wafer foundry, which is the direction in which SMIC (overall) is heading so it is an easy sell to say there is a need to consolidate the 12” assets, but again it seems that with 51% ownership previously, they pretty much controlled it all. This harkens back to the minority shareholders who seem to be the motivating force behind this change. We are not sure whether it signals a lack of faith in SMIC’s long-term prospects, or if the Big Fund is looking for more unicorn-like investments, but the press release reads like a carefully worded justification for a transaction that was not necessary. Chinese corporate bullshit is just like American corporate bullshit.
SMIC says they are making the purchase to recover profitable assets, as SMIC North’s production lines are fully depreciated and fully utilized, which will now be attributable to SMIC, raising its ‘profile’, and giving it full control over those assets (although we expect it has had full control since inception). SMIC North is a 12” wafer foundry, which is the direction in which SMIC (overall) is heading so it is an easy sell to say there is a need to consolidate the 12” assets, but again it seems that with 51% ownership previously, they pretty much controlled it all. This harkens back to the minority shareholders who seem to be the motivating force behind this change. We are not sure whether it signals a lack of faith in SMIC’s long-term prospects, or if the Big Fund is looking for more unicorn-like investments, but the press release reads like a carefully worded justification for a transaction that was not necessary. Chinese corporate bullshit is just like American corporate bullshit.
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