SMIC stake sale ‘stone cold’

The sale of a strategic stake in Semiconductor Manufacturing International (SMIC), China’s biggest chipmaker, has stalled amid boardroom disagreements over which investor to choose, according to people familiar with the situation.

In March SMIC, which is listed in Hong Kong, appointed Morgan Stanley and Deutsche Bank to lead the sale process, a move that sparked a flurry of interest from private equity firms, which are expected to pay $500m for a 20 per cent stake.

Several firms, attracted by the company’s low valuation and growing interest in greater China’s technology companies, have expressed interest in acquiring the stake but are awaiting a company response.

One person involved in the bidding said: “The process has gone stone cold and we haven’t heard anything for weeks. All we hear is that the board is undecided about how to proceed.”

Richard Chang, SMIC chief executive, said a special boardroom committee set up to handle a possible stake sale was continuing to look for further offers.

He told the Financial Times: “There are a lot of possibilities and factors [to consider]. A lot of the opportunities are good but we still need to study to see which is best.”

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, its shares have fallen sharply since listing at HK$2.69 three years ago and this month have traded at below HK$1 – the realm of poorly regarded Hong Kong “penny stocks”.

Meanwhile, Mr Chang said China’s domestic chip design companies were fast catching up with the rest of the world.

Chip design revenues in China have already risen from $129m in 2000 to $2.5bn last year, and there will be “even faster growth from 2007 onwards”, he forecast.

Developing a domestic chip design industry would be an important step in China’s advancing up the value chain of the tech market, a sector traditionally occupied by US and Taiwan-based companies.

SMIC does not design its own chips, instead making them on orders from design houses. The chips are then used in products such as computers, digital cameras and MP3 players.

Mr Chang said that, by the end of next year, 20 per cent of SMIC’s orders would come from mainland China compared with 10 per cent last year.

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