On December 10th, heavily indebted integrated circuit maker, Tsinghua Unigroup, finalized its circle of strategic investors under the supervision and guidance of the court. The Zhilu-JAC Consortium, composed of Wise Road Capital with a state funding background, and Beijing Jianguang Asset Management Co. Ltd (“JAC Capital”), will address Tsinghua Unigroup’s debt issue currently worth hundreds of billions of yuan.
Tsinghua Unigroup dates back to year 1988 when Tsinghua University, established the Tsinghua University Sci-Tech General Company. In recent years, Tsinghua Unigroup has gradually become a high-tech industrial ecological chain with integrated circuits as a leading focus. The company now covers fields such as “core” and “cloud”, and has substantially developed within the global information industry.
However, on July 9 this year, creditors applied to the court for bankruptcy reorganization of Tsinghua Unigroup on the grounds that the latter could not pay off its debts. Further, the company’s assets were insufficient to pay off all debts and lacked solvency. Court filings also mention the company’s reorganization value and industry feasibility. On July 16, Beijing No.1 Intermediate People’s Court ruled to accept the reorganization of Tsinghua Unigroup. On August 27th, the Court ruled that Tsinghua Unigroup and its six subsidiaries should be merged and reorganized.
Wise Road Capital was founded in May 2017 and is a private equity investment fund that invests in core semiconductor technology and other emerging high-end technology. JAC Capital was established in January 2014 and is a private equity fund management company focusing on the investment and M&A of integrated circuit industry companies and strategically emerging industries.
In the past few years, these two companies have jointly completed many overseas investments and M&A, covering both the upstream and downstream of the industrial chain, such as chip design, wafer manufacturing, packaging and testing, and semiconductor materials. Cumulatively, they have invested over 60 billion yuan.
There are two consortiums in the final round, while that formed by Alibaba and the State-Owned Assets Supervision and Administration Commission of Zhejiang People’s Government, failed. Industry insiders think Alibaba failed because of a few factors. In terms of advantages, Alibaba hasn’t accumulated much experience in the integration and operation of the semiconductor industry like Wise Road Capital while the company pays more attention to light asset operation modes, such as chip design.
After the decision of their strategic investors, Wise Road Capital-JAC Capital Consortium mainly needs to address the massive amount of debt owned by Tsinghua Unigroup. As of November 19, the creditors’ meeting of Tsinghua Unigroup confirmed the creditor’s rights of about 142.6 billion yuan.
Such huge debts came from the many M&A launched by Tsinghua Unigroup in the past few years. In 2013, it acquired Spreadtrum Communications, and in 2014, it acquired RDA Microelectronics, and then integrated the above two companies into one under the name of UNISOC. At present, UNISOC is one of the few domestic enterprises that is able to develop 5G smartphone systems-on-chip (SoC).
Apart from smartphone chips, Tsinghua Unigroup has acquired Tangshan Guoxin Electronics Co., Ltd., purchased the equity of H3C, and established Unis WDC together with Western Digital Corp. The company has taken a series of actions to achieve an extensive layout in communication chips, memory chips and FPGA design.
But, because of the company’s continuous large-scale M&A and semiconductor investment, Tsinghua Unigroup has seen a substantial gain in its total assets and liabilities. Its financial report suggests that the end of the third quarter of 2020 saw that Tsinghua Unigroup owned a total asset of 300.8 billion yuan and had total liabilities worth 210.7 billion yuan. The remaining asset-liability ratio was as high as 70% which then brought pressure one the capital chain. Since November last year, Tsinghua Unigroup have defaulted several bonds.