SMIC Plans to Raise Capital for Expansion

Article By : Alan Patterson

China's Semiconductor Manufacturing International Corp. aims to sell new shares through a Shanghai-based stock exchange. The proceeds will be used for production R&D and working capital.

Semiconductor Manufacturing International Corp. (SMIC), based in Shanghai, aims to sell new shares that could raise more than $3 billion for investment in expansion.

The board of China’s biggest foundry earlier this month approved a proposal to issue 1.69 million new shares on China’s Sci-Tech Innovation Board, also known as the STAR market, for technology companies. Based on the value of SMIC’s shares listed in Hong Kong, the sale of the new shares could raise about $3.2 billion.

SMIC said 40 percent of the money raised will be used for its “12-Inch SN1 Project”; 20 percent for R&D on advanced and mature technology; and the rest for the replenishment of working capital. The company is likely to announce approval of the share sale in an extraordinary general meeting on May 25th.

The company has been seeking alternative funding sources after it delisted from the New York Stock Exchange last year amid increasing restrictions by the U.S. against Chinese tech companies. Analysts believe that access to advanced manufacturing equipment is the biggest challenge for SMIC in its efforts to expand.

“Financially, this move allows SMIC to access to lower-cost capital, but we don’t believe it would result in any change operationally,” Sanford C. Bernstein analysts Mark Li, Hanxu Wang and Edward Hou said in a report provided to EE Times. “Strategically, we believe SMIC is gradually severing the ties to the U.S. capital markets, as the tension between the U.S. and China escalates because of Covid-19 and another round of the trade war is brewing.”

The report cautioned that SMIC’s access to U.S. technologies, especially semiconductor manufacturing equipment, will be more challenging, particularly after the U.S. Commerce Department announced tighter export controls last week.

China aims to achieve self-sufficiency in production of semiconductors. SMIC, with the support of the Chinese government, is a primary vehicle of that aim.

Huawei may lose access to Taiwan Semiconductor Manufacturing Co.’s most advanced production technology in the future, the report said. The U.S. government has been trying to restrict TSMC’s sales to Huawei, one of the world’s leading makers of 5G equipment. Huawei may try to redirect some chip orders to SMIC, but it will be impossible for SMIC to meet these expectations if the company does not have U.S. chipmaking equipment, according to the report.

Huawei’s chipmaking subsidiary, HiSilicon, is using TSMC’s 7nm technology for production of its Kirin processors. SMIC lags three generations behind TSMC at the 14nm node.

The United States has even blocked SMIC from buying EUV lithography equipment from ASML of the Netherlands, which is key to upgrading the Chinese company’s production technology.

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