US says Chinese private equity fund’s acquisition of South Korean chip maker poses a ‘national security risk’

Name: What is CFIUS, anyway?
Uploaded: 2021-09-01T14:00:22.000Z
Duration: 1 min 20 s
Description: What is CFIUS, anyway?

The Treasury Department identified such national security risk in the US$1.4 billion deal involving Wise Road Capital

The inter-agency Committee on Foreign Investment in the United States will refer the Magnachip review to US President Jose Biden for final decision

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Since it was established in 2016, Wise Road Capital has emerged as an active Chinese buyout fund in the semiconductor industry. Photo: Reuters

Che Pan

Published: 10:00pm, 1 Sep 2021Updated: 7:57am, 2 Sep 2021

The US Department of the Treasury said the acquisition of South Korean chip maker Magnachip Semiconductor Corp by a Beijing-based private equity fund poses a national security risk, casting a shadow on the US$1.4 billion deal and other efforts by Chinese companies to invest in hi-tech industries abroad.

In a filing with the US Securities Exchange Commission (SEC) on Monday, New York-listed Magnachip said the Treasury Department, on behalf of the inter-agency Committee on Foreign Investment in the United States (CFIUS), has “identified risks to the national security” of the US in the transaction involving Chinese equity fund Wise Road Capital.

CFIUS, which assesses the national security implications of mergers, acquisitions and takeovers in the country, did not elaborate on the nature of the risks. It issued an interim order in June to Magnachip to suspend the deal. The Magnachip transaction, which CFIUS started reviewing in May, will be referred to US President Joe Biden for final decision.

On March 25, Magnachip entered into an agreement with South Dearborn Limited, a company incorporated in the Cayman Islands that was formed by an affiliate of Wise Road, and Michigan Merger Sub, a Delaware-based firm. Under this deal, Merger Sub will be merged with Magnachip, and become a wholly owned subsidiary of South Dearborn under Wise Road.

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What is CFIUS, anyway?

Magnachip is expected to provide additional information to CFIUS, including “proposals to permanently mitigate the identified national security risks”, the South Korean company said in its SEC filing.