Tue, Mar 16, 2004 - Page 11 News List

IPO reset to beat market

MISSING THE BOAT?Grace Semiconductor has sped up its plans to raise equity due to fears that next year overproduction may hurt the chip market

BLOOMBERG

Plans by Grace Semiconductor Manufacturing Corp (宏力半導體) to go public have been brought forward by at least three months as an industry slowdown forecast for 2005 dampens investor demand for chip stocks.

Grace wants to raise funds to expand production, according to chairman Winston Wang (王文洋).

The Shanghai-based company's planned IPO follows that of Semiconductor Manufacturing International Corp (中芯國際集成電路), China's biggest chipmaker, which last week in Hong Kong raised HK$14 billion (US$1.8 billion).

Grace said its share sale will raise a similar amount.

China's chip market, the world's third-largest, will grow by 30 percent to US$38 billion this year, according to market researcher Gartner Inc. The global chip industry will slump by the end of next year because of overcapacity, Gartner said.

"Grace has missed the cycle from an IPO perspective," said Samir Mehta, who helps manage the equivalent of US$3 billion for Lloyd George Management in Hong Kong.

"Grace will have to face a price that's lower in valuation than Semiconductor Manufacturing's."

Semiconductor Manufacturing, based in Shanghai, and its shareholders sold 5.15 billion shares at HK$2.72 each, the highest price sought, a banker involved in the sale said, asking not to be identified. American depositary receipts for Semiconductor Manufacturing begin trading tomorrow and shares start trading in Hong Kong on Thursday.

Grace, which started making computer chips in December, in September said its IPO could raise as much as US$3 billion. Grace said it will spend about US$400 million this year for expansion compared with US$1.95 billion for Semiconductor Manufacturing.

"We'll grow gradually," Wang said.

Grace needs the funds to start construction next year of China's second plant able to make chips on 12-inch diameter silicon discs, or wafers, which produce more powerful semiconductors at lower cost.

The company may have capacity of 27,000 eight-inch wafers per month by the end of this year at its current plant.

Semiconductor Manufacturing is building the nation's first 12-inch wafer facility in Beijing.

Grace, whose main product is flash-memory chips used to store code in DVD machines and MP3 players, has to expand to compete with rivals such as Taiwan Semiconductor Manufacturing Co (台積電), the world's biggest supplier of made-to-order chips.

"We will achieve positive cash flow by the end of this year," Wang said.

"We should be making a profit in November or December," Wang said.

Grace is counting on its proximity to customers in China to boost sales, said Wang, the son of Wang Yung-ching (王永慶), chairman of Formosa Plastics Group (台塑集團), Taiwan's biggest industrial group. Wang, 52, helped establish Nanya Technology Corp (南亞科技), Taiwan's biggest maker of computer-memory chips.

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