On September 9, after a synchronized trading suspension of A-H shares for 6 trading days, Semiconductor Manufacturing International Corporation (688981.SH) finally disclosed its plan to acquire the remaining 49% minority stake in its subsidiary SMIC Beijing Integrated Circuit Manufacturing Co., Ltd. (hereinafter referred to as "SMIC Beijing") through share issuance.
According to the plan, SMIC intends to acquire the 49% stake in SMIC Beijing from minority shareholders through the issuance of new shares. Upon completion of the transaction, SMIC's ownership in SMIC Beijing will increase from 51% to 100%, making it a wholly-owned subsidiary of SMIC.
"This transaction will help further improve the listed company's asset quality, enhance business synergy, and promote long-term development," SMIC emphasized in its announcement.
Regarding pricing, SMIC's share issuance price for acquiring SMIC Beijing stands at RMB 74.20 per share. However, as the audit and valuation work for the target assets has not been completed, the final overall transaction pricing remains to be determined.
Notably, after the news disclosure, SMIC's share issuance price created a "gravitational effect" on the company's A-H share prices. SMIC's A-shares, which traded at a significant premium to H-shares, plummeted 10.26% on September 9, marking the largest single-day decline this year and evaporating over RMB 80 billion in market value.
SMIC's H-shares eventually closed slightly higher, though they had surged about 5% during early trading.
Industry analysts noted that SMIC's adoption of asset restructuring to achieve north-south integration, with SMIC Beijing's minority shareholders exiting through SMIC A-share allocation rather than cash, reflects minority shareholders' confidence in SMIC's prospects. Meanwhile, SMIC Beijing's strong asset performance is expected to enhance the company's overall profitability after the restructuring.
A "Profitable" Deal
According to available information, SMIC Beijing, controlled by SMIC, focuses on 12-inch wafer foundry services with mass production capabilities across multiple process platforms including logic circuits, low-power logic circuits, high-voltage drivers, embedded non-volatile memory, mixed-signal/RF, and image sensors. The company provides integrated circuit wafer foundry and supporting services for various end applications including smartphones, computers and tablets, consumer electronics, connectivity and wearables, industrial and automotive sectors.
In terms of capacity, SMIC Beijing currently operates two 300mm production lines with monthly capacity of 35,000 wafers each: the first production line mainly produces 40nm and 28nm Polysion process products; the second production line features 28nm HKMG process and higher technology levels.
Financially, as of the end of 2024, SMIC Beijing's total assets reached RMB 44.353 billion, including net assets of RMB 40.757 billion. For the full year 2024, SMIC Beijing achieved operating revenue of RMB 12.979 billion and net profit of RMB 1.682 billion, representing year-on-year growth of 12% and 187% respectively.
From a purely financial perspective, this transaction is likely a "profitable" deal.
A brief calculation of SMIC's consolidated data reveals that SMIC's 2024 consolidated net assets totaled RMB 229.1 billion, with net profit attributable to parent company shareholders of RMB 5.373 billion for the same period, yielding a calculated ROE of only 2.34%. In comparison, SMIC Beijing's ROE for the same period is estimated at approximately 4.1%.
If future valuation agencies price SMIC Beijing's transaction value close to identifiable asset assessments and acquire the minority stake at RMB 74.20 per share, it will likely enhance SMIC's earnings per share in the short term.
Industry analysis suggests this move primarily aims to recover profitable assets and enhance listed company profits. Since SMIC Beijing was established over 10 years ago, its production lines have largely completed depreciation or are nearing the end of their depreciation period, resulting in substantial profits.
Long-Awaited Integration
SMIC Beijing was established as part of SMIC's early "diamond strategy," which aimed to leverage national resources to support SMIC's development, forming the northern branch of this strategy.
In its early years, SMIC adopted the so-called "diamond strategy" to stay close to downstream customers and effectively utilize government resources, policies, and funding support for rapid expansion and technological iteration. This strategy led to simultaneous establishment in East China (Shanghai), North China (Beijing, Tianjin), South China (Shenzhen), and Central-West-South China (Chengdu, Wuhan). Concurrently, SMIC generally adopted a 51% equity controlling stake approach for its subsidiaries to maintain control while coordinating wafer manufacturing capacity development across regions.
SMIC Beijing, now being incorporated into the listed company, benefited from unique resources and policy support in its early years and was among the first to establish mature process wafer production lines, becoming a representative subsidiary for mature processes within the SMIC system.
From the perspective of listed companies enhancing assets through capital operations, SMIC Beijing, as a representative mature process enterprise, has reached the stage of "consolidation to enhance corporate earnings," making the restructuring acquisition a natural progression.
If "long-separated entities must unite" represents the general trend, SMIC's gradual recovery of minority stakes in other subsidiaries will likely become a high-probability event.
Currently, except for SMIC Shanghai which is 100% controlled, SMIC's other controlling subsidiaries include SMIC South, SMIC Jingcheng, and SMIC East, with ownership ratios of 51%, 51%, and 69.97% respectively. SMIC South has the lowest ownership ratio at 38.52% as of current data.
Since most SMIC subsidiaries have not been consolidated, SMIC's "potential profits" remain off-balance-sheet, with future consolidation possibilities.
Following Domestic Chip Development
SMIC's capital operations coincide with the critical period for domestic advanced process high-end AI computing chip mass production.
Previously, Hangzhou DeepSeek company released DeepSeekV3.1 and explicitly stated that the new model is compatible with upcoming domestic chips with "UE8M0 FP8" parameter structure, signaling that the era of large-scale mass production of domestic advanced process computing chips may be approaching.
Furthermore, industry sources indicate that for the foreseeable future, Chinese AI-related companies' capital expenditures will be deeply linked to domestic chip supply. Companies including Baidu's Kunlun, Cambricon, and Huawei Ascend are all set to mass-produce advanced process AI computing chips, testing the capacity and yield capabilities of partner foundries like SMIC.
Additionally, other major internet companies like Alibaba and Tencent are investing in autonomous AI computing chips or ASIC edge computing chips, all of which will place higher demands on domestic wafer capacity.
"SMIC's acquisition of the remaining 49% stake in SMIC Beijing to achieve full control fundamentally aims to strengthen strategic control and resource synergy. As a foundry operating under a heavy asset model, complete control of SMIC Beijing can eliminate decision-making friction caused by dispersed ownership, unify allocation of Beijing facility production line resources and technology roadmaps, and accelerate advanced process R&D progress. Meanwhile, through mature capacity integration, it can more effectively serve Beijing-Tianjin-Hebei industrial cluster demands while improving equipment utilization and scale efficiency," noted angel investor Guo Tao in an interview.
He further pointed out, "Against the backdrop of deepening domestic substitution, full ownership of key manufacturing facilities helps ensure supply chain security, aligning with strategic orientations of national funds and other state capital. Additionally, post-consolidation can enhance profits and optimize asset structure, providing sufficient cash flow for subsequent capacity expansion. Therefore, this move signifies SMIC's consolidation of industry position through internal integration and strengthening of absolute control over core manufacturing processes."