SMIC Doubles STAR Offering as Stock Gains on China's Growing Chip Market

Backed by state initiatives, SMIC is reaping capital to improve domestic chip production.

CapitalWatch Staff
    Jul 07, 2020 11:30 AM  PT
SMIC Doubles STAR Offering as Stock Gains on China's Growing Chip Market
author: CapitalWatch Staff   

China's top chip foundry Semiconductor Manufacturing International Corp. (SMIC) has doubled its Shanghai target to up to $7.5 billion in the biggest public offering in the mainland in a decade.

Traded on the Stock Exchange of Hong Kong under the code "00981," SMIC's stock has nearly doubled from HK$19 a month ago to HK$39 per share as of Tuesday. Looking back six months, SMIC was trading near HK$13 in mid-January.

This week, the biggest chipmaker in China has bumped up the share price in its anticipated offering in Shanghai at the Nasdaq-style STAR Market. In a Sunday statement, SMIC said it seeks to sell 1.68 billion shares at 27.46 yuan apiece. If underwriters exercise the over-allotment option, the offering may rise to 1.92 billion shares.

The listing places SMIC's price-to-earnings ratio at 83.44 – nearly four times higher than Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), according to Caixin Global.

SMIC has been amassing capital for the production of 12-inch chip wafers at its Shanghai factory over recent months. In May, at right about the same time as it announced its approved listing in the Mainland, the company raised $2.5 billion from two state funds. It said that the funds will boost the production of 14-nanometer wafers. In its latest statement, SMIC did not specify the use of the additional proceeds from its China listing over the 20 billion yuan it targeted back in May.

Recently, SMIC announced it reached a milestone by kicking off the production of the Kirin 710A for Huawei on its 14nm FinFET process. To compare, TSMC this year is working on delivering the 5nm chip to the same Huawei, as well as to Apple Inc. (Nasdaq: AAPL).

Operating since 2000, SMIC chose to delist from the New York Stock Exchange amid the Sino-U.S. tech war a year ago. In the U.S., the chip giant continues to trade on the OTCQX as "SMICY." Its shares traded at $24.08 per share, down from the 52-week high of $26.65 per share SMICY hit on Monday following news of its upsized China offering.

Backed by Beijing, SMIC is expected to grow significantly as China ramps up domestic chip production amid the U.S.-Sino tensions. The country has traditionally relied on chip imports worth $300 billion annually; the trade and tech war with the United States has intensified China's efforts in the sector. By 2030, China hopes to produce $305 billion of semiconductors and supply 80% of the domestic market.

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