(Bloomberg) — A major Tsinghua Unigroup Co. shareholder has pushed back against a prominent government-backed fund’s takeover bid, casting doubt on a deal portrayed as a bailout of one of China’s most important but debt-ridden semiconductor players.
Zhao Weiguo’s holding firm Jiankun, which owns 49% of Unigroup, sent a memo to domestic executives and creditors decrying a takeover bid led by JAC Capital as undervaluing his company, according to a copy of the letter seen by Bloomberg News and verified by people familiar with the matter.
In his communique, the industry veteran singled out how the deal valued Yangtze Memory, one of the group’s prime assets, at just 5.1 billion yuan ($801 million) versus a deserved valuation closer to 160 billion yuan, according to the memo. Representatives for Unigroup and JAC didn’t immediately respond to requests for comment outside regular Chinese business hours.
Zhao’s outcry threatens to disrupt the proposed rescue of Unigroup, which has become a national security issue since Xi Jinping advanced 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.
It clouds the proposal by JAC, a state-backed semiconductor investment fund, that last week defeated a rival consortium led by Chinese e-commerce leader Alibaba Group Holding Ltd. 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 concerns, Bloomberg News has reported. 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, people familiar with the matter said.
JAC and affiliate Wise Road Capital had offered 60 billion yuan to pay off debts to creditors. The Alibaba consortium, which includes funds backed by the Zhejiang government, had proposed a deal of more than 50 billion yuan 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.
Read more: Alibaba-Led Bid for Unigroup Is Said to Hit Last-Minute Snag
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.
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: Yangtze Memory, 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.
Read more: Secretive Chinese Committee Draws Up List to Replace U.S. Tech
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 chipmaking and cloud business.
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