(Bloomberg) — An Alibaba Group Holding Ltd.-led effort to take over China’s troubled Tsinghua Unigroup Co. has hit a last-minute snag, according to people familiar with the matter, raising the prospect a rival bidder will close the deal for the semiconductor champion.
Chinese officials had been leaning toward the Alibaba consortium as recently as last month, but the e-commerce giant’s stock listing in the U.S. has raised recent concerns, said the people, asking not to be named because the talks are private. American regulators are tightening auditing requirements for U.S.-listed companies, which could expose China’s leading chip company to the disclosure of sensitive information if it were owned by Alibaba, they said.
Instead, Unigroup may turn to JAC Capital, a Chinese semiconductor investment fund that has also bid to salvage the indebted chipmaker, they said. The state-backed fund is one of the two remaining bidders, though Unigroup has yet to rule out the possibility of bringing in new buyers, one of the people said.
Any final agreement would need Beijing’s approval, given the company’s importance. Talks are fluid and the preferred bidders may still change.
Alibaba and Unigroup didn’t immediately respond to requests for comment.
The Alibaba consortium, which includes funds backed by the Zhejiang government, had proposed a deal of more than 50 billion yuan ($7.8 billion) to help keep the chipmaker afloat. Any agreement would likely include conditions for restructuring Unigroup’s roughly 100 billion yuan-plus of onshore and offshore debt, Bloomberg News reported in November.
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The fate of Unigroup has become a national security issue as Xi Jinping advances a strategy for self-sufficiency in key technologies in competition with the U.S. The Beijing-based company affiliated with prestigious Tsinghua University — Xi’s alma mater — remains a linchpin in a race for technological supremacy.
Unigroup expanded rapidly during a decade-long stimulus blitz that fueled heady economic expansion through binging on credit. Unigroup and its affiliates went on an acquisition spree, buying up foreign names including RDA Microelectronics Inc. and Spreadtrum Communications Inc. en route to building China’s most sophisticated maker of 5G chips in Unisoc.
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H3C, a joint-venture with Hewlett Packard, is a key server supplier to the Chinese government and state-owned enterprises. And in 2017, it unveiled its signature project: the $22 billion Yangtze Memory Technologies, which competes against Micron Technology Inc. and Samsung Electronics Co. The company at one point harbored aspirations to become the nation’s first giant in the global semiconductor industry and once planned a $23 billion bid for U.S. memory-chip giant Micron.
But concern over the scale of China’s resulting debt mountain prompted a de-leveraging campaign from around 2017, choking off the spigot for borrowing. That coincided also with a newfound impetus to restructure the sprawling corporate empires that have sprung up around the nation’s top universities, including Tsinghua.
The Chinese semiconductor titan in 2020 defaulted on a bond and in July a court ordered it to overhaul its debt, prompting it to invite strategic investors with deep pockets as well as the capability to run a major chip-making and cloud business.
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