Chinese tech heavyweight Alibaba Group Holding is reportedly on the shortlist of potential white knights that would bail out embattled domestic chipmaker Tsinghua Unigroup, which once stood at the forefront of China’s semiconductor ambitions.
Tsinghua and its creditors have settled on restructuring proposals from seven strategic investors that have expressed interest in leading the rehabilitation, the company announced Monday.
The release did not name all the winning candidates, but Alibaba is the sole private-sector contender among the group, according to a report by Caixin. The final decision is due to come down by next February.
President Xi Jinping’s alma mater in Beijing, Tsinghua University, owns 51% of the company.
Tsinghua had embarked on high-profile purchases and investments, including the acquisition of Chinese memory chip leader Yangtze Memory Technologies Co., or YMTC. But that highly leveraged strategy led to the company defaulting on its bonds multiple times leading up to the end of 2020.
In July, creditors for Tsinghua filed a petition in a Beijing court to launch bankruptcy and restructure proceedings which applied to the parent along with six group companies. YMTC and other affiliates still maintain day-to-day operations.
A panel put together by court-supervised administrators whittled down a list of about a dozen suitors to seven. Those making the cut were required to have at least RMB 50 billion (USD 7.7 billion) in assets. Experience with running or restructuring semiconductor and cloud services were also requirements.
Tsinghua is saddled with more than RMB 100 billion in confirmed debt, according to Chinese media, which also reported that the chosen candidates were willing to put up to RMB 50 billion to RMB 60 billion in funds.
Alibaba, China’s leading e-commerce group, is also a cloud service provider with a wide roster of major clients. The company manages several data centers and has poured resources into the semiconductor business for the past few years.
Through a subsidiary, Alibaba has recruited semiconductor talent from Europe and the US to boost its development prowess. The company is busy developing its own chips such as those to power artificial intelligence processes in data centers. It apparently is looking to raise its technical capabilities by taking over Tsinghua, which has YMTC under its umbrella.
The other six candidates are enterprises owned by the state or by local governments. One of them, China Electronics Corp., is a major military contractor involved in developing systems and central processing units.
Wholly owned by the Beijing’s municipal government, suitor Beijing Electronics Holding has tech companies under its umbrella and holds a stake in LCD panel maker BOE Technology Group. Also on the list is Guangdong Hengjian Investment Holding, which is fully controlled by Guangdong Province and invests in the state-owned China General Nuclear Power Group.
Beijing Electronics plans to keep Tsinghua headquarters in place at the Chinese capital if it wins out in the end, but Guangdong Hengjian Investment is considering moving the company to Guangzhou, the seat of Guangdong Province.
Candidate Wuxi Industry Development Group, run by the Wuxi city government, has invested in 68 targets, controlling companies that reportedly generate over RMB 80 billion in combined sales. Wuxi Industry Development says its experience in semiconductors is highlighted by its investment in an integrated circuit plant built in Wuxi in cooperation with Shanghai Huahong (Group), a contract chip manufacturer.
Rounding out the seven camps are a consortium led by Beijing Jianguang Asset Management, and an alliance formed in part by Shanghai Guosheng Group. It is believed that the participants in the consortiums have rich backgrounds in the semiconductor field.
The criteria for choosing Tsinghua’s final sponsor are not known. Multiple backers are expected to be selected in the end, and some predict a political power struggle will color the process.
Reportedly, Tsinghua Unigroup chairman Zhao Weiguo maintains a personal relationship with Hu Haifeng, the son of former Chinese President Hu Jintao. Zhao denies those reports, but there is a strong chance of a change at the top if the restructure moves forward.
Due to the central government’s crackdown on the tech industry, many observers say state-owned enterprises have an edge in the race to take over Tsinghua. Another scenario has Alibaba surviving as a partner who will put up the rescue funds.
The local governments behind the state-owned candidates are overseen by powerful leaders, whose influence may determine which contender will be selected.