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Employees at the SMIC plant in Beijing. Photo: Imaginechina

China’s biggest chip maker, SMIC, to withdraw from New York Stock Exchange as trade spat with US spills over to technology sector

  • The sudden delisting comes as Washington steps up efforts to cut off US technology from China
  • Company attributes move to low US trading volumes and the high cost of an NYSE listing

China’s biggest maker of semiconductors is to withdraw from the New York Stock Exchange, citing low trading volumes and burdensome costs – a move that ends its 15-year US listing as the trade war with the US spills over into the technology sector.

Semiconductor Manufacturing International Corp (SMIC) said on Friday evening that it had notified the NYSE of its intention to apply on June 3 to delist its American depositary receipts (ADRs) from the bourse.

In a filing to the Hong Kong stock exchange, where its shares are listed, SMIC cited low trading volumes of its ADRs and the high costs of maintaining the listing and complying with reporting requirements and related laws.

The voluntary delisting is expected to happen after June 13, and trading of the chip maker’s US securities will shift to the over-the-counter market, the statement said.

The board has already approved the move, according to the filing, although SMIC also will need permission to implement its plan from the US Securities and Exchange Commission (SEC).

An NYSE spokeswoman would not comment on the matter when contacted by the South China Morning Post.

Investors were caught off guard by the announcement. The stock fell 4.9 per cent, or 27 cents, to close at US$5.23 on Friday.

Shares had tumbled to an intraday low of US$5.11 as US trading began. The company’s Hong Kong-listed shares dropped 4.3 per cent to HK$8.42 (US$1.07) at the close on Friday.

SMIC’s shares started trading in both Hong Kong and the US in March 2004. Pictured is the chip maker’s Beijing office. Photo: SCMP Pictures

SMIC’s ADR trading volume topped 1 million shares on Friday, the first time it had reached that level since February 2018.

A head of equity trading at a major US brokerage, speaking on background because the firm does business on the NYSE, said companies moved listings to try to save money.

“And if there isn’t enough volume on the ADR market versus the local market, it can create a disjointed price. With global trading becoming more seamless, it might be one reason for the move,” he said.

He acknowledged, however, that “abandoning an ADR is not something you see very often”.

SMIC’s ADR trading volume topped 1 million shares on Friday, the first time it had reached that level since February 2018. Photo: Reuters

“Simply leaving the ADR market, writ-large? Usually a company delists on one exchange because it has been enticed to list their shares on a rival exchange,” the head trader said.

The sudden move came as Washington steps up efforts to cut off US technology from China, with trade negotiations between the world’s two largest economies deadlocked.

The Trump administration has put Huawei Technologies, China’s biggest telecoms equipment maker, on its so-called entity list, which will virtually ban the company from buying key American technologies and products.

The sanction may be expanded to include as many as five Chinese video surveillance companies, including the largest, Hangzhou Hikvision Digital Technology, and Zhejiang Dahua Technology, according to media reports.

SMIC’s voluntary delisting comes as the US-China trade war spills over into the technology sector, including semiconductor manufacturing. Photo: SCMP Pictures

To combat such moves, China has strengthened its policy support for its home-grown chip industry to reduce the sector’s reliance on imports.

After an announcement from the finance ministry this week, Chinese integrated circuit makers and software developers will be exempt from paying corporate taxes for two years starting in 2019, and the tax rate will be halved in the next three years.

SMIC is backed by the Chinese government, with state-owned enterprises or state-linked investment funds as the major shareholders.

The China National Integrated Circuit Industry Investment Fund, created by the government in 2014 to bolster the development of home-grown technologies and acquire overseas patents and designs, has a stake in SMIC through an investment arm.

SMIC has ties to US chip maker Qualcomm, in a Shanghai-based joint venture that focuses research and development on next-generation chip design. Photo: Reuters

SMIC’s shares began trading in Hong Kong and the US at the same time, in March 2004.

Its Hong Kong-traded shares have advanced 23 per cent so far this year, well ahead of a 5.8 per cent gain on the Hang Seng Index in the same period. Its revenue increased 8.3 per cent from a year earlier to a record high of US$3.36 billion in 2018.

SMIC has ties to leading US chip maker Qualcomm, in the form of a joint venture company based in Shanghai that focuses research and development on next-generation chip design.

Attempts to reach Qualcomm to see what, if any, impact the delisting might have on its joint investment with SMIC were not immediately successful.

Additional reporting by Daniel Bases

 

This article appeared in the South China Morning Post print edition as: chip maker SMIC quits new york exchange
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