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China tech

SMIC makes biggest market debut in China in 10 years

Chipmaking rival to TSMC aims to beef up investment as trade tensions simmer

Contract chipmaker SMIC's market capitalization topped 600 million yuan after its shares listed on the Shanghai STAR market. (Source photos by Reuters and AP)

TAIPEI -- Semiconductor Manufacturing International Co., China's top contract chipmaker, became the country's most valuable domestically listed tech stock on Thursday after its shares surged on their first day of trading on the Shanghai STAR market, the Chinese version of Nasdaq.

When the opening bell rang at 9:30 a.m., shares of Beijing-backed SMIC began trading at 95 yuan, about 245% higher than its offering price of 27.46 yuan. It is the biggest share offering in mainland China in 10 years.

Its shares closed the day at 82.92 yuan, giving the company a market capitalization of 591.75 billion yuan ($84.55 billion), according to STAR Market.

SMIC, which is also listed in Hong Kong and counts Huawei, Qualcomm and many Chinese chip developers as clients, had said it would raise at least 46.3 billion yuan ($6.55 billion) in its share offering on the STAR board to increase its investment firepower, the Nikkei Asian Review reported earlier. That is more than double the 20 billion yuan the Chinese company first planned to raise, according to its prospectus.

Investor enthusiasm for the listing -- the STAR market's biggest so far -- comes as Beijing aims to cut China's reliance on foreign chipmakers and support the country's domestic semiconductor industry, which is viewed as critical to national security, amid ongoing tensions with Washington.

The listing comes just days ahead of the Shanghai tech board's first anniversary. Several chip-related Chinese companies including Cambricon -- the first Chinese artificial intelligence unicorn -- key Bluetooth chip developer Bestechnic, and GalaxyCore, a leading Chinese CMOS image sensor maker, are also planning to list on the STAR market in the near term.

SMIC's offering underscores how keen China's top policy makers are to convince domestic tech titans to list locally. The move is also the latest indication of a decoupling from the U.S. capital market after Washington demanded stricter reviews on Chinese companies listing in America.

Sina, the Nasdaq-listed Chinese company behind the Twitter-like service Weibo, has received a proposal from an entity led by Chairman and CEO Charles Chao to take the business private after 20 years on the U.S. exchange. More than 100 Chinese companies are listed in the U.S., including Beijing-backed China Mobile, the country's largest carrier, and e-commerce giant Alibaba Group Holding.

SMIC was previously listed on the New York Stock Exchange, but trading in its shares was low, and it delisted last year amid the escalating U.S.-China trade war. The Chinese company is still listed in Hong Kong.

"The Chinese government is hoping to present SMIC as a successful model to local investors and to promote its strategic chip industry in their top policies," said Eric Chen, a veteran tech analyst and managing director with Cornucopia Capital Partner. "But very soon investors will have to look at whether SMIC can deliver good fundamental financial performance going forward, as it is still under geopolitical pressure given that Huawei is its biggest customer."

Chen added that in the near term there will be waves of tech and chip companies listing on the STAR board, as top policy makers are currently endorsing the market. "But whether the STAR board's overall success is sustainable for years to come is still something that needs to be closely monitored."

SMIC flagged various business risks ahead of its share offering in Shanghai, including geopolitical tensions and its technological gap with market leaders. The Chinese company also faces problems in obtaining advanced chip-production equipment from ASML, Europe's largest chipmaking equipment supplier, due to U.S. pressure, Nikkei reported earlier. The equipment is crucial for SMIC's tech capability to leap ahead in the next few years. Further U.S. export controls on Huawei, which require non-American chip suppliers to apply for licenses if using U.S. tools, could seriously impact the Chinese chipmaker's business.

SMIC’s market value is now larger than that of United Microelectronics, its bigger Taiwanese rival in the foundry market -- the business of making chips for others.

Taiwan Semiconductor Manufacturing Co. is currently the No. 1 player in the contract chipmaking industry, with a more than 50% global market share, according to research company TrendForce. TSMC's revenue was $34.63 billion in 2019. SMIC, which controlled only around 5% of the market in the April-to-June quarter this year, recorded $3.12 billion in revenue last year. United Microelectronics' revenue in 2019 was 148.2 billion New Taiwan dollars ($5.03 billion) and it has about a 7.3% market share.

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