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China tech

Tsinghua Unigroup default tests China's chipmaking ambitions

Money-losing company faces more repayment deadlines ahead

Tsinghua Unigroup exhibits at the 23rd China Beijing International High-tech Expo in September.    © Getty Images

SHANGHAI -- A financial crisis at leading Chinese chipmaker Tsinghua Unigroup threatens to slow the progress of President Xi Jinping's campaign to bolster the country's semiconductor industry in its growing tech rivalry with the U.S.

Tsinghua Unigroup failed to meet its Sunday deadline to repay a 2017 private debt issuance worth 1.3 billion yuan ($198 million).

This marks the latest sign of strain on the chipmaker, which has supersized investment plans for building up Chinese capacity to produce semiconductors used in both consumer devices and advanced technology.

The default does not immediately put Tsinghua Unigroup at risk of collapse, since banks in China usually continue to provide working capital to companies for some time even when they fail to pay back bonds. Often times, a company will repay a few days late and claim it has averted a default altogether.

Still, the company had 146.6 billion yuan in interest-bearing debt as of the end of June, more than half of which will need to be repaid within a year. It suffered a 3.3 billion yuan net loss for the January-June half, and continues to bleed cash.

A spin-off of Tsinghua University, Xi's alma mater, Tsinghua Unigroup has begun to mass-produce NAND flash memory in Wuhan. It plans to build a plant in Chongqing for DRAM chips -- a field in which it aims to invest 800 billion yuan over 10 years.

A NAND flash memory plant in Wuhan run by a Tsinghua Unigroup subsidiary. (Photo by Yusho Cho)

News of Tsinghua Unigroup's financial troubles led investors to dump its other bonds that have yet to reach maturity, with some plunging more than 20% below their face value. Shares in subsidiaries like Unigroup Guoxin Microelectronics are also down. Meanwhile, American rivals Micron Technology and Western Digital gained in Monday trading in the U.S.

Tsinghua Unigroup is considered considered a bright spot in China's semiconductor industry, which has seen some successes but also many failures like Wuhan Hongxin Semiconductor Manufacturing, a player that had been planning over 100 billion yuan in investments before essentially collapsing this year. Its latest troubles could set back the industry as a whole.

During a meeting with bondholders last weekend, Tsinghua Unigroup had proposed paying back part of the bond in question now and the rest in six months. Though the proposal garnered more than 80% support, it ended up failing due to procedural problems.

There are reports that Tsinghua Unigroup is planning another meeting with bondholders.

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