Chinese chip giant weighs IPOs, land sales to slash debt burden

For years, China was the world’s biggest spender on chip incentives, a scale unmatched from Washington to Tokyo. PHOTO: REUTERS

BEIJING – Tsinghua Unigroup’s new owners are exploring ways to stave off creditors after completing a US$9 billion (S$12 billion) takeover, including industrial property sales and floating fast-growing business units such as a local rival to Qualcomm.

Executives at Unigroup have discussed initial public offerings (IPOs) for three subsidiaries including Unisoc, which develops 5G chips for smartphones and drones, a person familiar with the matter said. This could lead to one of the more prominent debuts in China’s semiconductor industry, where advanced home-grown chips are scarce.

Unigroup, until recently affiliated with the prestigious university linked to President Xi Jinping, once helped lead China’s efforts to build a world-class semiconductor sector, but is now struggling after years of massive spending, including on building domestic giant Yangtze Memory Technologies.

In 2022, Unigroup endured a contentious restructuring, which former chairman Zhao Weiguo fought against, before JAC Capital led a consortium that acquired the embattled firm and sold off Yangtze, the nation’s biggest maker of memory chips for servers, PCs and mobile devices.

The discussions are in their early stages and there is no guarantee that Unigroup will eventually go ahead with public market floats. But the company needs to raise cash to bring its debt-to-equity ratio below a target of 50 per cent within two years, the person said, adding that executives have not ruled out an overseas listing eventually.

Unigroup may also decide to milk more profit from insurers, after-school tutoring services and real estate companies that it controls, the person said.

Unigroup, like a broader Chinese chip sector now grappling with escalating United States technology export sanctions, is at a crossroads.

Having hived off Yangtze Memory – once the crown jewel of its operations – the company and its new owners have not divulged their longer-term plans to regain its footing in the chip industry. An arm of Taiwan’s Foxconn Technology Group, the world’s biggest assembler of iPhones, took a small stake only to be forced by the island’s government to unwind it because of national security concerns.

Adding to the uncertainty, Mr Zhao was implicated last year in a wide-ranging probe into corruption in the Chinese chip industry and the fund that spearheads many of the government’s highest-profile investments into its players. At that point, China’s top leadership had grown increasingly frustrated with a years-long failure to develop semiconductors that can replace US circuitry – an embarrassment capped by the US$9 billion rescue of Unigroup.

For years, China was the world’s biggest spender on chip incentives, a scale unmatched from Washington to Tokyo. Now, the effort to combat Covid-19 and deal with the threat of a global recession is depleting state coffers and forcing Beijing to rethink that controversial approach. Policymakers are searching for other ways to help home-grown chip firms.

Turning Unigroup around would go a long way towards restoring confidence in the ability of local firms to succeed in chipmaking.

In 2022, Unigroup’s new chairman, Mr Li Bin, said the company intended to eventually expand beyond chips into sectors like genetics and artificial intelligence. BLOOMBERG

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