Chipmaker hopes it can raise more money to cover an expected shortfall from next week's US$100m offering CSMC Technologies is staying silent on how it plans to raise funds following the completion of its US$100 million Hong Kong initial public offering next week, which will not yield enough capital to pay for published expansion plans. The Wuxi-based contract chip foundry starts its IPO roadshow today, with book-building set to begin on June 15 and close on June 18, according to a market source. The shares will debut on June 25. CSMC had reduced size of the public offering from HK$1.56 billion announced in February amid poor market sentiment. The expected proceeds will not cover the US$76 million in forecast capital requirements this year and the $322 million to build an eight-inch wafer facility - meaning CSMC will need to return to the market or take on additional debt. Chairman Peter Chen yesterday said he could not comment on how the company would finance its capital expenditure plans. In March, when the chief financial officer for Semiconductor Manufacturing International Corp (SMIC) attempted to answer the same question during its IPO, she was forced into an embarrassing climb down by regulators. Mr Chen said CSMC could comfortably borrow more, as its debt-to-equity ratio stood at 25 per cent, compared with 50 per cent for most mainland chipmakers. 'My chief financial officer keeps telling me: 'We have a lot of borrowing power',' he said. CSMC will be the second mainland chipmaker to list, following SMIC. However, Mr Chen stressed the differences between CSMC and its Shanghai-based rival. SMIC, the mainland's largest contract chipmaker, competes for mostly global clients using the latest technologies. CSMC's customers are mainly local companies using low-end chips. The company also points to a long record of profits, aided by its focus on low-end chips. 'We've been profitable every quarter over the past four years,' Mr Chen said. CSMC earned US$4 million on revenue of $42 million in 2001 - when the global semiconductor industry was in a downturn. In 2002, earnings climbed to US$10 million on $41 million in sales. Last year, Sars clipped profit to $4 million, on turnover of $30 million. Listing sponsor Citigroup expects earnings of $11.04 million this year on $85.37 million in sales. Mr Chen would not comment on the offer's pricing but did say the sale would comprise new scrip - meaning no proceeds would go to existing shareholders. Reuters yesterday reported the offer would be priced at about 1.5 times forward book value, without identifying the source. SMIC trades at 2.8 times book. Dow Jones also carried a report yesterday saying CSMC would sell 621 million shares, with a greenshoe option to expand the offering 15 per cent. One potential trouble spot for CSMC is the construction schedule for the eight-inch wafer plant. The facility will be completed in about 18 months - when many market watchers expect the cyclical industry to turn downward again. Mr Chen said he hoped to maintain profitability - as in the last downturn - by focusing on niche products such as smart cards and analogue and high-voltage processes. Although CSMC keeps costs low by relying on fully depreciated, second-hand chip tools, other start-ups employ the same strategy. In addition, industry giant Taiwan Semiconductor Manufacturing Co (TSMC) plans to shift depreciated equipment from Taiwan to its mainland factories. Mr Chen dismissed the threat from newcomers, saying they were late to market. As for TSMC, led by Morris Chang, the firm would not want to be seen operating in the low-end with a small company such as CSMC. Mr Chen said: 'If he says he's going to compete with CSMC, his stock will drop.'