July 16, 2020 – South China Morning Post, Daniel Ren. Semiconductor Manufacturing International Corporation (SMIC), China’s biggest chip maker, surged on its stock debut, tripling its value in the midst of a state-endorsed bull market while setting a successful bookend to its exodus from the New York Stock Exchange.
The chip maker’s shares surged as much as 246 per cent to 95 yuan when they began trading in Shanghai, versus its initial public offering (IPO) price of 27.46 yuan. They closed at 82.92 yuan on the Star Market, a technology board that allows unlimited two-way price swings on the first five trading days.
The rally gave SMIC a market capitalisation of 590 billion yuan (US$84.3 billion) on a day when the broader equity markets slumped. The Shanghai Composite Index plunged 4.5 per cent on Thursday, the most in five months. SMIC’s shares listed in Hong Kong crashed 25 per cent to HK$28.75.
Before Thursday, the gauge reached the highest level in 17 months in its 10 per cent charge this year that added some US$1 trillion to the market capitalisation. The run-up brought its rally to 35 per cent from the lowest point in 2019 amid ample liquidity and an influx of foreign funds and new retail investors afraid of missing out on the party.
The market upswing was given a tacit approval earlier this month when China Securities Journal said the A-share markets had the criteria and foundation for a healthy gain. The rally was needed to foster economic recovery, attract foreign investment and compete with other markets, the journal added.
Dozens of company executives, investors and industry consortium leaders were invited to the listing ceremony at the Shanghai exchange on Thursday morning, sitting on chairs that were sparsely lined up at the trading floor.
No media organisations were invited to the event in what a company official described as a move to limit the number of participants to prevent the spreading of the coronavirus. SMIC was aiming for a “low-key”, he added, without elaborating.
Chairman Zhou Zixue said the listing reflected that the Star Market’s importance to so-called red-chip firms, or mainland companies incorporated overseas, to facilitate fundraising, according to an industry official who attended the listing ceremony and who declined to be identified.
The technology board has a crucial role in supporting China’s ascendancy in the key technology fields, as well as bolstering innovative home-grown companies as the US threatened to shut them out from the world’s deepest capital markets, he told officials during the listing ceremony.
SMIC is backed by the government-linked entities, a situation that has provoked accusations of unfair playing fields by western governments. State-owned Datang Telecom Technology & Industry Holdings is its single largest holder with a 16.3 per cent stake.of the company.
The China National Integrated Circuit Industry Investment Fund, created by the government in 2014 to bolster the development of home-grown technologies and acquire overseas patents and designs, has a 2.23 per cent stake and is investing 3.5 billion yuan in the company, SMIC said.
SMIC announced a surprise plan a year ago to delist from the US market amid heightened global technology war, a spillover from two years of acrimonious US-China trade war. President Donald Trump has ordered US technology companies to stop supplying their hardware, software and services to Chinese companies on national security grounds.
“Semiconductor companies are the darling of Chinese investors nowadays as tension between the US and China escalated,” said Ivan Li, a money manager at Shanghai-based Loyal Wealth Management. “The battle in the technology field, particularly in chip-making, has largely fuelled Chinese investors’ enthusiasm in home-grown manufacturers.”
Since the SMIC announcement, technology behemoths including this newspaper’s owner Alibaba Group Holding, NetEase and JD.com have got their “homecoming” by getting their shares traded in Hong Kong using through a secondary listing programme. Baidu Inc. is also mulling the move to mainland or Hong Kong exchanges.
Established in 2000, SMIC raised 53 billion yuan in the nation’s biggest IPO since July 2010 when the Agricultural Bank of China netted 68.7 billion yuan of proceeds on the mainland stock market. Its IPO was fast-tracked by authorities and the eventual size was more than double its initial filing for 20 billion yuan.
The offering price pegged the company at 109 times its 2019 earnings, based on the expanded share base, according to its exchange filing. By comparison, rival Taiwan Semiconductor Manufacturing Co had a trailing price-earnings ratio of 21 times.
SMIC’s fundraising is among 66 deals that helped propel the Shanghai exchange to the second spot in global IPO league table this year, challenging traditional front runners like the Hong Kong and New York exchanges.
JP Gan, a founding partner of Ince Capital, said the Star Market offers a venue for promising Chinese firms to raise capital and expand their businesses.
“Some companies traded on the market will derail from the track,” he said. “But when innovation and risk taking are encouraged, a large number of failures should be tolerated as long as a few great companies can emerge.”
With additional reporting by Zhang Shidong in Shanghai.