DatangTelecom( China State-Owned) pumps cash 70M into SMIC

Datang pumps cash into SMIC, TSMC declines

Peter Clarke

5/6/2011 10:00 AM EDT

LONDON – Datang Telecom Technology & Industry Group, a state-owned enterprise headquartered in Beijing, is investing $70 million in China's leading foundry, Semiconductor Manufacturing International Corp., in which it is already the leading shareholder.

The development comes shortly after it was announced that China Investment Corp. was investing $250 million for 12 percent of SMIC.

Datang is doing so by exercising a right grated to it Nov. 8 2008 purchase so-called pre-emptive securities. SMIC said the move is welcome because it will strengthen SMIC's strategic relations with Datang as well as providing it with capital.

Taiwan Semiconductor Manufacturing Co. Ltd. (Hsinchu, Taiwan) was granted stock and a similar right as part of a settlement with SMIC over intellectual property theft in 2009. As part of those rights TSMC has the right to purchase a pro rata portion of the new shares and warrants being issued equivalent to the percentage of the issued share capital owned by TSMC prior to the issue of the new shares and warrants.

SMIC said that TSMC had said it will not be taking up its rights

Datang will subscribe for 84,956,858 convertible preferred shares at a price of HK$5.39 and 16,991,371 warrants at an exercise price of HK$5.39 per warrant. These prices reflect discounts from SMIC share price on Thursday May 5 of about 25 and 28 percent respectively.

It is estimated that the net proceeds from the issue of the Datang pre-emptive preferred shares will be approximately $58.3 million.

It is estimated that the net proceeds upon exercise of the Datang pre-emptive warrants would be approximately $11.7 million

The issue of the Datang Pre- emptive Securities to Datang is conditional on the obtaining of the approval of independent shareholders and necessary governmental approvals.

Prior to the issuance of the preference shares and warrants Datang's holding in SMIC was approximately 19 percent, Shanghai Industrial held 7.8 percent and TSMC 6.5 percent. After the issuance of the shares and assuming the exercise of warrants Datang would still hold while other investors holdings would have diluted, CIC's to about 13 percent, Shanghai Industrial's holding to 6.75 percent and TSMC's to about 5.6 percent.