China’s second-largest chip maker after SMIC gets green light for US$2.5 billion Shanghai IPO

Hua Hong, already listed in Hong Kong, is aiming to raise 18 billion yuan on the Shanghai exchange’s Star Market
Washington export restrictions cloud the future of the chip maker, whose most advanced technology is the 55-nm process node

Semiconductors

Jiaxing Li

Published: 6:30am, 7 Nov 2022

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Hong Kong-listed Hua Hong Semiconductor, China’s second-largest chip maker, has received regulatory approval for a US$2.5 billion initial public offering (IPO) in Shanghai, as the company forges ahead amid Beijing’s self-sufficiency drive despite new headaches from US restrictions.

Hua Hong has received a letter of acceptance from the Shanghai Stock Exchange to issue yuan-denominated shares and list them on its Science and Technology Innovation Board (Star Market), the company revealed in a filing to the Hong Kong stock exchange on Friday.

The state-backed company aims to raise 18 billion yuan to fund capacity expansion in China’s semiconductor heartland of Wuxi, northwest of Shanghai, according to the company’s prospectus. The funds will also be used to upgrade its 8-inch wafer fabrication plants and innovate new technologies, Hua Hong said.

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If successful, the deal would become the third-largest IPO on the Nasdaq-style Star Market after chip-making champion Semiconductor Manufacturing International Corp (SMIC) and cancer drug developer BeiGene, which are also both listed in Hong Kong.

Hua Hong, whose most advanced technology is the 55-nanometre process node, has a capacity to produce 324,000 8-inch wafers a month, making it the second-largest chip maker in China after SMIC, according to its prospectus.

The company’s top revenue-generating processes are 350-nm and 90-nm, which together accounted for 60 per cent of its first-quarter revenue of 3.7 billion yuan.

The regulator’s green light for the IPO comes as Beijing has vowed more support for domestic tech companies amid escalating trade restrictions from the US in an effort to curb progress in China’s chip industry.

During the 20th party congress last month, President Xi Jinping laid out the country’s development goals for 2035 and said prioritising hi-tech industry would be at the “top of all economic policies”.

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The Shanghai Stock Exchange will also strive to build a capital market ecosystem and support technological innovation, Cai Jianchun, general manager of the exchange, said in a speech on Friday at the China International Import Expo (CIIE). The exchange will encourage and help more “hard tech” companies to go public and issue bonds, Cai said.

Recent escalations in the US-China tech war has pushed Hua Hong into an unwelcome spotlight. In May, Washington certified the chip maker as a “validated end-user” of sensitive American technologies, complicating its procurement of advanced chip-making equipment from American suppliers.

Washington’s expanded export controls targeting mainland chip makers in October dealt another heavy blow to Hua Hong, sending the company’s Hong Kong shares into free fall. Its shares have fallen 52 per cent this year.

Noting the continued impact of the geopolitical struggle over semiconductors, the company listed international trade frictions as a risk factor.

A “relatively large share” of its equipment and raw materials come from overseas, according to the prospectus, meaning changes to export policies could limit its production growth.