Hua Hong shelves listing plan

Firm blames weak investor sentiment towards chip sector and China's efforts to slow economic growth

Mainland chip manufacturer Shanghai Hua Hong NEC Electronics is delaying plans to raise as much as US$500 million on the Hong Kong stock exchange, citing weakening investor sentiment towards the industry.

This comes one week after Wuxi-based CSMC Technology Corp called off an offering of up to HK$683 million.

Hua Hong's decision highlights the difficult issuance environment for mainland companies in light of the central government's efforts to slow economic growth and fears of interest-rate rises in the United States and China.

The poor performance of Semiconductor Manufacturing Industrial Corp since its March listing and concerns of a cyclical peak in the global chip industry pose further challenges for Hua Hong, which has hired BNP as its listing sponsor and originally hoped to raise US$400 million to $500 million in the second half of this year.

'We are temporary putting Hua Hong NEC's listing plan on hold,' China Electronics Corp (CEC) president Yang Xiaotang said told the South China Morning Post. CEC holds about 60 per cent of Hua Hong through its wholly owned Hua Hong Group.

'It has been Hua Hong NEC's intention to go public since 1999,' CEC vice-president Fan Qingwu said. 'But whether we can successfully list depends on a lot of factors [beyond our control].'

Mr Yang added: 'Overall demand in the chip industry is not as strong as we expected a few months ago. A few months ago, people were very positive about the industry's prospectus of the industry. But now they are concerned that the pace of growth is slowing.'

IT research house Gartner Dataquest recently estimated that chip demand in Hong Kong and China would grow 33 per cent this year to US$39.7 billion. But it added that this rate of growth was unsustainable and would slow to 22 per cent next year and 7 per cent in 2006.

Hua Hong NEC, which began operations in 1999, booked profits in 2000 and 2001 but then veered into the red.

It has invested more than 10 billion yuan since its establishment in 1997, and amortisation charges each year can easily offset the company's earnings.

'This industry is very unique - it keeps burning money,' Mr Yang said. 'And because of the heavy capital expenditure, depreciation costs can eat up earnings.'

Hua Hong operates one eight-inch wafer fab with a monthly production capacity of 40,000 wafers, and is planning to build another eight-inch fab at an estimated cost of US$1 billion.

But Mr Yang cautioned the pace of the expansion project would depend on the strength of his company's order book.