Chipmaker SMIC seeks suitor

Semiconductor Manufacturing International, China’s biggest chipmaker, has hired investment banks to find a strategic investor willing to help bankroll the company’s development plans.

SMIC, which is listed in Hong Kong, has appointed Morgan Stanley and Deutsche Bank to lead the process, with a successful suitor likely to have to spend up to $500m for an expected 20 per cent stake. Both banks and SMIC declined to comment.

The decision to mandate sale advisers comes after the company’s admission last January that it had received approaches from private equity firms.

News of the banks’ appointment has sparked a flurry of interest from buy-out groups, attracted by SMIC’s low valuation and rising interest in greater China’s technology companies. This was highlighted by Carlyle Group’s $5.7bn proposed acquisition of Advanced Semiconductor Engineering of Taiwan.

SMIC, which is based in Shanghai, is regarded as occupying a privileged position because Taiwan’s leading chipmakers are subject to politically-inspired restrictions on how much they can invest on the mainland.

However, some analysts believe SMIC is falling behind global leaders such as Taiwan Semiconductor Manufacturing and have forecast a dip in first-quarter revenues.

SMIC raised $1.8bn through a dual Hong Kong and New York listing in March 2004.

But its shares, which were priced at HK$2.69, have fallen more than 60 per cent over the past three years and have twice dipped below HK$1, the realm of poorly regarded Hong Kong “penny stocks”.

SMIC’s shares closed last week at HK$1.03. A brief rally in late December and January, when the company revealed the private equity approaches, proved short-lived. People familiar with the situation said that SMIC was keen to attract a minority investor and would not have to seek full shareholder approval if its share capital is enlarged by less than 20 per cent.

“SMIC needs funds for capital expenditure and private equity firms can bring expertise and networks to the table too,” said one commentator. “These are early days but every one is going to have a look at this,” said another. “It could be a rare chance to buy into a decent tech company at a decent price.”

SMIC was founded seven years ago by Richard Chang, who remains president and chief executive. Mr Chang is a controversial figure in his native Taiwan, which limits the transfer of its chip companies’ most advanced technologies to the mainland. In 2005 the Taiwan government fined Mr Chang $158,000 and ordered him to withdraw his investment in SMIC.