Proceeds move clouds Solomon float
A hefty portion of the proceeds from Solomon Systech (International)'s initial public offering next month will go to existing shareholders - a move which could fuel investor doubts about the chip designer, especially after Semiconductor Manufacturing International Corp (SMIC) flopped in its listing debut.
Solomon plans to raise between HK$965 million and $1.23 billion by selling 603.58 million shares, or 25 per cent of its share capital. Of this, 537.18 million shares have been set aside for institutional investors and 66.39 million for the public.
Existing shareholders will sell 264.11 million, or 43.75 per cent of the amount on offer, netting them as much as HK$541 million. The offer has been priced at between $1.60 and $2.05 per share. JP Morgan is the sole book-runner.
Bankers in the deal sought to draw differences between SMIC, the mainland's largest contract chipmaker, and Solomon, which designs chips for liquid crystal displays in mobile phones. 'They're looking at a great growth story,' a source close to the deal said.
Although SMIC needs US$3.32 billion over the next two years to pay for capital expansion, existing shareholders pocketed more than $730 million in the $1.79 billion offer.
But the source said Solomon's need for funding was not as pressing. About 30 per cent of the proceeds will be used for new product development, 30 per cent to secure production capacity such as back-end testing equipment, and 30 per cent for general working capital.
In addition, Solomon had a three-year track record of earnings growth, while SMIC achieved profitability only in the fourth quarter of last year. Solomon earned US$27.7 million last year, up 233 per cent.
One of the risks the chip designer faces, according to its listing document, is its reliance on a handful of customers for sales. Solomon's five largest customers accounted for 79.8 per cent of sales last year, and its biggest client 21.9 per cent.
Order-taking from institutional investors began yesterday, while the public tranche opens on Thursday. Book building closes on March 29, with final pricing to be determined on March 31. Trade is set to begin on April 8.
