March 25, 2008 / 10:20 AM / 10 years ago

UPDATE 1-SMIC in advanced talks with investor, shares surge

(Adds details, background)

HONG KONG, March 25 (Reuters) - Top Chinese chipmaker Semiconductor Manufacturing International Corp (0981.HK) (SMIC) said it was in advanced talks to sell shares to a strategic investor, sparking a 16 percent surge in its shares on Tuesday.

The news comes one year after media reports that the company hired two investment banks to find a strategic partner in a search that ultimately failed to win a suitor. SMIC’s market capitalisation is around HK$8.5 billion ($1.1 billion).

But SMIC (SMI.N) said in a statement late on Monday that a strategic investor planned to invest in the company by purchasing shares or convertible instruments, representing a significant stake, but said no agreement had yet been reached.

The company declined to comment further about the deal.

Shares of SMIC closed up 16.48 percent at HK$0.53 on Tuesday, after rising as much as 23 percent during trade.

Prior to Tuesday’s jump, SMIC’s stock took a steady beating this year, falling 45 percent.

The company, which posted a net loss in 2006 and 2007, has been hit by plummeting global prices for dynamic random-access memory (DRAM) chips.

SMIC has said it expected DRAM chips to account for less than 20 percent of its total revenue in this year’s first quarter, as it ramps up production of high-end logic and flash memory chips.

Part of SMIC’s management may also buy shares, the company said on Monday. The chipmaker has not signed a binding agreement and the talks may not result in a transaction, it said. Last March, Reuters and other media reported that SMIC hired Deutsche Bank and Morgan Stanley to advise it on a deal.

    Several private equity firms, including Bain Capital and Kohlberg Kravis Roberts & Co were interested in a 25 percent stake in the company, The South China Morning Post reported at the time.

    In the end, SMIC failed to seal a deal. SMIC’s reference to a “strategic” investor means it is in talks with another corporation and not a private equity firm.

    A 25 percent stake in the company would be worth around $250 million.

    SMIC rivals include Chartered Semiconductor Manufacturing Ltd CSMF.SI, Taiwan Semiconductor Manufacturing Co Ltd (2330.TW) (TSM.N) and United Micro Electronics Corp (2303.TW) (UMC.N).

    Last May, Dutch electronics firm Philips (PHG.AS) (PHG.N) raised $2.56 billion by selling shares in Taiwan’s TSMC (2330.TW) on Wall Street, part of its plan to exit the world’s top contract chip maker. (US$1=HK$7.8) (Reporting by Michael Flaherty; Additional reporting by Donny Kwok in Hong Kong and Sophie Taylor in Shanghai; Editing by Edmund Klamann)

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