A consortium led by Alibaba Group Holding Ltd (阿里巴巴) has emerged as the frontrunner to take over Tsinghua Unigroup Co (清華紫光), a deal that could fetch more than 50 billion yuan (US$7.8 billion) to help keep China’s indebted chip champion afloat.
The Chinese government is leaning toward the Alibaba-led offer given the e-commerce giant’s financial heft and the potential synergies with its own cloud and semiconductor business, people familiar with the matter said.
The consortium, which includes funds backed by the Zhejiang Provincial Government, is edging out several competitors for Beijing-based Unigroup, several other people said, asking not to be identified as the information is private.
A successful deal could help avert one of China’s biggest potential corporate failures, while securing for Alibaba valuable chip know-how and a supply of semiconductors to fuel the country’s largest cloud computing platform.
While the transaction is expected to be completed as soon as next month, negotiations are ongoing and details on timeline, deal size and a final buyer could still change, they said.
Billionaire Jack Ma’s (馬雲) empire is mostly known for its e-commerce leadership, but the Hangzhou-based firm that he cofounded has in the past few years made enormous headway into computing and last month unveiled one of the country’s most advanced chips.
A deal could help Alibaba score points with Beijing, which punished the e-commerce giant for monopolistic behavior, but also wants to reduce its reliance on the US for chips.
Any deal is likely to include conditions for restructuring more than 100 billion yuan of onshore and offshore debt that Unigroup has, another person familiar with the discussions said.
Alibaba representatives had no immediate comment, while a Unigroup spokesperson did not immediately respond to requests for comment.
Aside from the Alibaba-led consortium, several state-backed companies, including semiconductor investment fund JAC Capital (建廣資產管理), Wuxi Industry Development Group Co (無錫產業發展集團) and Beijing Electronics Holding Co (北京電子控股) also weighed bids, the people said.
The Beijing-based company, which is affiliated with China’s Tsinghua University, remains a linchpin in a race for technological supremacy with the US.
The Chinese semiconductor titan last year 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 chip-making and cloud business.
Confidence that Unigroup’s distressed assets would not get left in limbo grew after a debt-workout plan in May for its peer, Peking University Founder Group Corp (北大方正集團).
Under the plan, Founder, which is linked to another of China’s academic institutions, is to receive billions of dollars from strategic investors, including a state-owned property developer.
China’s chip industry is growing faster than anywhere else in the world, after US sanctions on local champions — from Huawei Technologies Co (華為) to Hikvision Digital Technology Co (海康威視) — spurred appetite for homegrown components. Nineteen of the world’s 20 fastest-growing chip industry firms over the past four quarters, on average, hail from the world’s No. 2 economy, data compiled by Bloomberg showed. That compared with just eight firms at the same point last year. Revenue at China-based suppliers of design software, processors and gear vital to chipmaking is increasing at several times the pace of global leaders Taiwan Semiconductor Manufacturing Co
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