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Mergers & Acquisitions

Bullish on chips: Everbright’s fund earmarks US$500 million to invest in semiconductors

The joint initiative with venture capital firm Walden International promises to heat up China’s pursuit of semiconductor assets worldwide

PUBLISHED : Friday, 27 October, 2017, 8:02am
UPDATED : Friday, 27 October, 2017, 10:03pm

Hong Kong-listed investment company China Everbright has teamed up with venture capital firm Walden International Group to launch a private equity fund that will invest in semiconductor and industrial information technology companies.

The Walden CEL Global Fund I, which has a target size of US$500 million, is expected to make investments and initiate acquisitions in semiconductor companies in the growth and mature stages.

Interest by Chinese companies in semiconductor-related investments, mergers and acquisitions at home and abroad has intensified the past two years, following the government’s introduction in June 2014 of a policy to build an advanced chip manufacturing supply chain.

The target is for the nation’s semiconductor industry to record a 20 per cent compound annual growth rate by 2020 while reducing dependency on imported chips.

“Developments in the internet, artificial intelligence and cloud computing are moving fast in China, and semiconductors serve as the heart and brain of the software and hardware used in those fields,” said China Everbright’s chief executive, Chen Shuang.

He said the company predicted a bright future for the semiconductor industry, as represented by the nearly US$100 billion in investments it made in the sector last year.

San Francisco-based Walden International, which invests in the telecommunications, media and technology sectors, has capital commitments of about US$2.6 billion. Its portfolio includes Chinese drone giant DJI International, customer relationship management software provider SugarCRM, Chinese smart supply chain specialist Best and Hong Kong-listed Semiconductor Manufacturing International Corp (SMIC), China’s largest contract chip manufacturer.

SMIC is the second-largest supplier to so-called fabless chip companies in China, behind the world’s biggest contract chip maker, Taiwan Semiconductor Manufacturing. These companies outsource the fabrication of the chips they design to large foundries like SMIC.

Walden has also invested in other Chinese chip firms, including fabless analogue semiconductor developer 3PeakIC, chip equipment maker ACM Research, controller device supplier Fortior Technology and integrated circuit designer GigaDevice Semiconductor.

The number of fabless semiconductor design companies in China has almost doubled to 1,362 last year, up from 736 at the start of 2015, amid the government’s sharpened focus on supporting the domestic semiconductor industry and growing demand from the nation’s consumer electronics industry.

China’s National Integrated Circuitry (IC) Investment Fund last year committed to invest nearly 70 billion yuan (US$10.5 billion) into the domestic semiconductor sector. About 60 per cent of that investment has been allocated to building semiconductor wafer fabs, according to research firm TrendForce.

It estimated that China’s capital spending on wafer fabs between 2015 and last year reached around 480 billion yuan, of which 86.5 per cent came from state-backed funds.

Everbright’s Chen said it has been the case in China that “breakthroughs” emerge whenever the government tightens regulations.

“I think the semiconductor industry will be the same,” said Chen, without elaborating on what sort of breakthroughs the sector could achieve.

Outbound investments will grow despite challenges: China Everbright CEO

Total revenue of the global semiconductor industry reached US$338.9 billion last year, with China accounting for US$150 billion, according to trade group the Semiconductor Industry Association.

Technology research firm Gartner has forecast worldwide semiconductor revenue this year to total US$364.1 billion, up 7 per cent over last year.

China Everbright’s investment is gradually shifting from private equity into venture capital, said Chen.

The company has also started using so-called fund of funds this year, an investment strategy of holding a portfolio of other investment funds, rather than investing directly in bonds, stocks or other securities.

“Generally, our business model follows changes in the investment market environment,” said Chen.