China firm turns inwards for cash as US markets tighten listing rules

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Semiconductor Manufacturing International Corporation (SMIC), one of China’s largest computing chip producers, announced on Monday its plan to raise $2.8 billion through an initial public offering (IPO). 

What makes this plan different from other recent Chinese tech IPO offerings is instead of listing on a U.S.-based exchange, SMIC applied to raise capital on the 1-year-old Shanghai Stock Exchange Science and Technology Innovation Board (SSE). This IPO comes amid the escalating tensions between the U.S. and China government officials. 

The SSE or STAR Market is the Chinese rival modeled after NASDAQ. The plan follows Beijing’s self-sufficiency policy initiatives to ease stock market listing requirements, offer tax breaks, and provide funding mechanisms to promising technology companies. Beijing has given these efforts greater impetus because of the degenerating trade relationship with Washington. 

Zhou Ling, a fund manager with Shanghai Shiva Investment, recently said, “The Star Market is now playing its role as a strategic fundraising platform to bolster the country’s own technology companies as the U.S.-China relationship worsens.”

The large semiconductor and chipmaker have several clients in the consumer electronics sector, chief among them are Huawei. According to online reports, SMIC is looking to raise the cash to boost investment in its technology and rapidly expand its capabilities. They will focus part of the proceeds on developing 14nm chips used for crypto mining.

The United States’ recent regulation aimed to restrict American technology to Huawei could have a negative ancillary impact on its industry associations. In its listing prospectus, SMIC said that the U.S.-China trade frictions and Washington’s latest rules on semiconductors posed a potential risk to its business since it could force SMIC to take on more production.

Industry experts say that SMIC is also vulnerable to pressure from U.S. regulators because it also uses U.S. technologies to produce chips.

The uplisting comes two months after SMIC announced a new partnership with ASIC hardware manufacture Canaan Creative. The two company’s plans included the development of a mining machine for an undisclosed cryptocurrency. They were reportedly testing SMIC’s 14nm block reward mining chip, scheduled to go into mass production by the end of June. 

SMIC already listed itself on the Hong Kong Stock Exchange (HKEx). It recently received a $2.2 billion investment from Chinese state-backed funds, the National Integrated Circuit Industry Investment Fund II and Shanghai Integrated Circuit Industry Investment Fund II, to fund the expansion of a SMIC wafer Shanghai facility.

The investment was China’s measure to expand chip-making capacity domestically amid international supply chain uncertainty. Industry experts say SMIC technology remains generations behind that of regional Taiwanese peer Taiwan Semiconductor Manufacturing Co. (TSMC), which provides chips to Bitmain Antminer series.