China’s SMIC raises US$441 million in its largest bond offering

PUBLISHED : Friday, 08 July, 2016, 2:25pm
UPDATED : Friday, 08 July, 2016, 6:49pm

Semiconductor Manufacturing International Corp (SMIC), mainland China’s largest contract chipmaker, is poised to ramp up its expansion plans after closing its biggest debt offering to date.

In a filing with the Hong Kong stock exchange on Friday, SMIC said it has completed the issue of its US$450 million, zero-coupon convertible bonds due on 2022.

The Shanghai-based company estimated net proceeds of US$441 million from the placed bonds listed on the Singapore Exchange Securities Trading on the same day.

“The placed bonds have been offered and sold to six or more independent individual, corporate and institutional investors,” SMIC chief executive Chiu Tzu-yin said in the filing.

The company said the proceeds will be used for expanding its production capacity and other general corporate purposes, which is expected to include strategic new investments.

SMIC earlier this year raised its capital spending to US$2.1 billion, up from US$1.4 billion last year, to continue with its manufacturing capacity expansion as well as research and development activities.

The placed bonds will be convertible into about 3.78 billion shares, representing 8.96 per cent of SMIC’s issued share capital.

The transaction represented the third zero-coupon convertible bond issue by SMIC after its US$95 million offering in 2014 and US$200 million placement in 2013.

SMIC last week agreed to take over Italian company LFoundry in a 49 million (HK$421.2 million) deal that marked its first acquisition of an overseas-based integrated circuit manufacturer.

That purchase of a 70 per cent controlling interest in LFoundry is expected to pave the way for SMIC to enter and supply chips to the automotive and industrial electronics markets.

“We see potential synergies from complementary technology and customer mix, and believe the deal will alleviate the supply shortage that SMIC is experiencing,” Bernstein senior analyst Mark Li said in a report.

Chiu had earlier said the LFoundry acquisition would enable SMIC to raise its production capacity by around 13 per cent, which would add much-needed scale amid the 99-per cent utilisation rate at its fabrication plants, or fabs, on the mainland over the past five quarters.

Nomura analyst Huang Leping said SMIC was well-positioned to surpass Taiwan’s United Microelectronics Corp and “become the world’s third largest [chip] foundry in terms of revenue by 2020”.

According to Nomura, SMIC revenue is forecast to reach US$3.94 billion by 2018, from an estimated US$2.73 billion this year.