SMIC’s mystery investor revealed: Telco firm Datang buys $172M stake

Nov. 11, 2008 – SMIC has finalized terms to receive long-rumored investment from an outside investor — Datang Telecom will invest $172M in equity for a 16.6% stake in the chipmaker, including the right to name a VP in charge of developing wireless communications technology.

Under terms of the deal, Datang will acquire roughly 3.7B new common shares of SMIC at HK$0.36 (US ~$0./05) each, though the value is somewhat diluted, after SMIC’s share values spiked by ~30% after the news was announced. The company also will be able to nominate two of SMIC’s nine board members, and name a VP to spearhead work on “time division-synchronous code division multiple access” (TD-SCDMA) technology, an international third-generation (3G) telecom standard, and also China’s self-developed 3G wireless standard — strongly suggesting SMIC now has a new foundry customer for such technology.

Rumors had been swirling that Datang wanted to buy a 20% stake in the chipmakers, valued at nearly $300M.

For SMIC, the investment represents much-needed capital infusion, and strategically offers new business inroads with Datang Holdings’ leadership in TD-SCDMA 3G development, notably opening doors in handsets, telecom infrastructure, and networking, notes Rick Hsu of Nomura International (HK) Ltd., quoted by Reuters.

“This investment represents a validation of our strategy, strength of our business, and reflects the strides we have made in the worldwide semiconductor manufacturing space,” said Morning Wu, SMIC’s acting CFO, in a statement. He added that the $172M investment will be used generally for “strategic opportunities,” and to “retain maximum flexibility in a difficult and challenging public financing market, improve our working capital condition, and assist our capital expenditures needs.”

For Datang, the deal with China’s flagship chipmaker is of “great importance” as it promotes development of China’s semiconductor and mobile telecom industries, as well as improves their international competitiveness by leveraging rapid deployment of TD-SCDMA 3G in China, added Datang VP Chen Shanzhi.


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