Turmoil at China’s silicon chip champion rocks self-reliance plans

Tsinghua Unigroup insists it has not defaulted on bonds and has ample cash

China’s focus on designing and manufacturing its own silicon chips has been rocked again by widening losses at a state-backed national champion that the government has poured billions of dollars into.

Tsinghua Unigroup, long thought to have ironclad backing from the government, went out of its way on Thursday to trumpet that support after market turmoil. Unigroup said it had not defaulted on any bonds and had ample cash “in and outside” the country in a statement issued by a listed subsidiary.

The share price of one of its Shenzhen- listed subsidiaries plunged by the 10 per cent limit on Wednesday while the price of its dollar-denominated bond due in 2021 fell sharply. The statement appeared to reassure investors and shares of its listed units nudged upwards while its dollar debt was also largely steady on Thursday.

Unigroup is a major Chinese semiconductor designer and producer with its chips enabling everything from China’s national ID cards to smartphones. It counts the holding company of the elite Tsinghua University as its majority shareholder and has received upwards of $22bn in financing from the government’s chip fund and a state bank.

The company is crucial to Beijing’s push for technological selfreliance — a priority made all the more clear this year as Washington blacklisted telecom equipment maker Huawei, security stalwart Hikvision and other leading Chinese tech companies, threatening their access to US- made or designed chips.

Unigroup claims to be the world’s third-largest chip supplier for smartphones after Qualcomm and Mediatek.

But that has not been enough to assuage growing concerns about Unigroup’s financial position and lingering ownership issues. Its losses widened to Rmb3.2bn ($460m) in the first half of the year, up from a Rmb631m loss in 2018.

Debt at the company has piled up as it invested heavily in building chip plants in China and acquiring foreign companies and talent. Its debt-to-asset ratio in June climbed to 73.7 per cent, up from 62.1 per cent at year-end 2017.

“Unigroup’s earlier capital outlays were too large, and in the near term they won’t be able to return cash,” said Shen Meng, director at Chanson & Co, a boutique investment bank in Beijing.

“Adding to it is Unigroup’s investment in semiconductor projects have been huge, but the technology is not necessarily new, so it remains a question if the state will continue to support it,” said Mr Shen.

Questions over control of the firm emerged last year after Tsinghua University said it would transfer a 36 per cent stake to a Shenzhen government- backed investment fund after a central government campaign to disentangle universities from commercial interests. In August Unigroup said the sale would not go through.