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China's Tsinghua Unigroup looks to cut stake in chip design unit

Intel-backed developer Unisoc eyes greater independence from indebted parent

Tsinghua Unigroup could reduce its financial burdens by selling a stake in Unisoc.

TAIPEI/HONG KONG -- Embattled Chinese chipmaking conglomerate Tsinghua Unigroup is looking to sell part of its stake in its Unisoc unit to raise cash, a move which could also help revive plans for an initial public offering of the key mobile chip affiliate, four people familiar with the development said.

Tsinghua Unigroup, which has missed a series of bond payments since December, is open to investor pitches to sell down its stake to raise cash. The company, the largest shareholder in Unisoc, may offload at least a 10% stake.

Unisoc could also issue fresh shares to an investor or investors to dilute Tsinghua Unigroup's ownership to about a quarter from 38.5% now, two people said.

"The plan is to minimize the perceived links with Tsinghua Unigroup as much as possible," said one of the people. "Unisoc wants to present an independent image of a company that is crucial for China."

Unisoc and its high-profile backers, who include Intel, have discussed the need for "relative independence" from Tsinghua Unigroup to drive business growth, two of the sources said.

For Tsinghua Unigroup, a stake sale would help reduce its financial burdens, after some of its high-profile chip projects have faced significant delays due to the group's financial woes, as Nikkei Asia has reported.

Unisoc, China's second-largest mobile chip designer after Huawei's HiSilicon Technologies, is among Tsinghua Unigroup's most high-profile and valuable assets and could attract investor interest thanks to Beijing's push for domestic chip self-sufficiency.

A stake sale would be expected to give Unisoc a value higher than the 55 billion yuan ($8.5 billion) achieved last year as part of an equity restructuring, when 24 new investors joined its rolls. One person said a $10 billion valuation could be achievable.

However two other people familiar with the matter said Tsinghua Unigroup may also have to keep its valuation expectations in check given ferocious competition facing Unisoc from market leaders Qualcomm and MediaTek -- the world's No. 1 and No. 2 mobile chip developers -- in an already saturated smartphone chip segment.

Unisoc's strategic importance to China has ratcheted up since Huawei, a national tech champion, came under severe U.S. pressure. Unisoc's has been luring engineers from HiSilicon amid Washington's crackdown on Huawei, hoping to expand its capability in chip design, the Nikkei Asia learned.

Tsinghua Unigroup's consideration of selling down its stake in Unisoc has the blessing of Chinese authorities, with a stake sale largely expected to be confined to local players, three people told Nikkei Asia.

China's ZTE is among the clients that buy smartphone chips from Unisoc.    © AP

While there is global private equity interest, two people familiar with the plans said they expect Unisoc to be "very selective" in considering investors. Private equity companies are also expected to tread with caution, the people said, due to the threat of U.S. investment restrictions amid the ongoing Washington-Beijing tensions.

Tsinghua Unigroup and Unisoc both declined to comment.

Unisoc last year planned to file a prospectus for an IPO on Shanghai's STAR Market, the company previously confirmed to Nikkei Asia. However, this was postponed for unknown reasons.

Unisoc, founded in 2001 and headquartered in Shanghai, introduced its self-developed 5G smartphone chip products for mobile devices in 2019 and counted Hisense and China Telecom as its first clients in 2020.

The mobile chip designer also counts ZTE, TCL, Nokia, LG and Motorola as customers. Taiwan Semiconductor Manufacturing Co., United Microelectronics Corp. and Semiconductor Manufacturing International Co. -- China's biggest contract chipmaker -- are all Unisoc suppliers.

Tsinghua Unigroup controlled around 57.1% of Unisoc before the equity restructuring last year, according to a statement from the chip designer.

China National IC Industry Investment Fund -- the so-called "Big Fund" that is the country's main seeding vehicle for semiconductors -- owns 15.27% of Unisoc. The Shanghai IC Industry Investment Fund holds 4.09% while Intel, which invested $1.5 billion for a 20% stake in 2014, has 12.98%.

Intel also once worked with Unisoc to share its 5G modem technology to tap the mobile market. The collaboration made Unisoc hopeful that it could quickly close the gap to industry leaders, but the partnership collapsed in 2019 just one year after the announcement. Intel later sold its smartphone modem business to Apple.

Tsinghua Unigroup, which is 51% owned by Tsinghua University, Chinese President Xi Jinping's alma mater, missed a redemption deadline for a $1.05 billion three-year bond on Jan. 29 and an interest payment due on Jan. 25 of 30.66 million yuan on a bond maturing in 2024. That follows two other bond defaults and a missed interest payment in December.

Unigroup has said it is a holding company and that its "group companies are operating normally." Unisoc is believed to have a degree of independence and be shielded from the direct impact of Unigroup's debt crisis.

Additional reporting by Nikkei staff writer Lauly Li.

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