China semiconductor fund agrees to invest $400m in local chip maker

According to a filing, IC Fund will acquire about 242.4 million shares in the Hong Kong-listed company for HK$12.90 apiece. Hua Hong’s stock spiked as much as 19% in the session following the announcement, and closed on January 4 at HK$17.60.

The capital will be used entirely to finance a capital injection into a planned joint venture (JV) comprising Hua Hong, IC Fund, Hua Hong subsidiary Shanghai Huahong Grace Semiconductor Manufacturing Corporation (HHGrace), and a group identified as the Wuxi Entity. HHGrace, IC Fund and Wuxi will make cash contributions of $518 million, $522 million and $360 million, respectively, into the JV.

Hua Hong will have a 51% interest in the JV, with 22.2% held directly by the company and 28.8% by HHGrace. The new business will engage in the manufacture, testing, packaging and sale of integrated circuits. It is expected to produce approximately 40,000 12-inch wafers per month during its first phase of production.

China consumes about $169 billion of microchips every year, more than any other country in the world. Over 90% of its integrated circuits are currently imported and the government plans to spend $150 billion over the next decade to develop the domestic semiconductor industry.

IC Fund was established as a RMB140 billion ($21.5 billion) specialist investment vehicle in 2014 by a number of government-owned organizations and is solely managed by Sino IC Capital. Recent activity includes participation in the acquisition of semiconductor industry supplier Xcerra, and a commitment of RMB50 billion to a Tsinghua University unit focused on integrated circuits.

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