Semiconductor maker Semiconductor Manufacturing International Corporation (SMIC) announced yesterday that mainland wireless operator Datang Telecom Technology & Industry Holdings will invest $171.8 million for a 16.6 percent stake in SMIC.

After the deal is completed, Datang Telecom will replace Shanghai Industrial Holdings as SMIC's largest shareholder.

The purchasing price has a 132.26 percent premium over the trading price, which stood at HK$0.15 before being suspended on Nov 6.

Datang Telecom will subscribe 3.66 billion SMIC's new shares at HK$0.36 per share. The $171.8-million deal will make Datang SMIC's largest shareholder. Bloomberg

Datang Telecom commits to subscribing more than 3.66 billion SMIC's new shareas at HK$0.36 per share.

The SMIC's announcement boosted its shares yesterday which soared to as much as 60 percent in early trade to close at HK$0.2, up 30 percent.

SMIC's company secretary Ann Chen said that the proceeds of the placing will be used as the company's capital expenditure and some of them will be set aside for repayment of the company's debts.

She added that the company can spare a significant amount of capital expenditure for next year as a result of the partnership, noting the company could save significantly on such aspects as technology.

She predicted that the company's capital expenditure for 2009 will be limited to about $200 million.

Redford Securities Head of Research Kenny Tang said that the deal will have a win-win situation for both parties. "SMIC can secure its clients' sources on the mainland market since Datang Telecom engages in the core business of TD-SCDMA. In addition, the transaction can strengthen the cash position of SMIC," Tang added.

SMIC, in return, can provide electronic chips and parts to Datang Telecom for a decent price, he said.

Chen said that major shareholders, including Shanghai Industrial Holdings, had supported the deal, adding the company remains open with regard to introducing private equities in the future.

Although SMIC's business has not turned into black over the past few years, Chen expressed confidence that the deal can help strengthen the company's financial muscle, raising its cash-on-hand from $400 million to $500 million.

SMIC recorded a net loss of $199 million in the first quarter.

The company made an additional loss provision for the DRAM inventory of about $44.5 million during the period. DRAM is used in computers to store data.

(HK Edition 11/12/2008 page3)