Government supports SMIC expansion in Beijing

The largest semiconductor foundry in mainland China, SMIC, is currently negotiating with the Chinese government to inject capital to expand the capacity of the Beijing fab. The source said that based on the current price calculation, the cost of SMIC's expansion of the Beijing fab is about 1.4 to 1.5 billion U.S. dollars. The company is currently actively seeking various possible financing channels, including the Government funds pay attention.

It is reported that SMIC may obtain government funds by way of equity transfer, and the amount of funds may reach about one-third of the above-mentioned expansion costs.

According to Reuters, sources familiar with the situation revealed that SMIC will receive a $500 million fund from the mainland government in the near future, and the company is also seeking the support of the banking group to actively expand its production capacity and catch up with its competitors.

It is reported that SMIC has been adopting a large-scale production expansion strategy for the past few years and is almost always in a loss situation. Funds from the mainland government have become the key to its expansion.

Sources pointed out that the mainland government will pay 500 million U.S. dollars in funds for the second phase expansion of the 12-inch SMIC plant in Beijing. Due to the urgency in time, the above funds are mainly used to expand production capacity in Beijing fabs, that is, to increase the production capacity of the 65-nm process.

Another Wall Street Journal also quoted sources as saying that the government's injection of funds is only one of the fund-raising channels considered by SMIC, and other pipelines include equity financing of private equity funds and issuance of convertible bonds.

The report pointed out that SMIC had stated in August that it expects the company's capital expenditure in 2010 will reach a scale of 700-750 million U.S. dollars, but the company’s capital expenditure in the first half of the year is only 156 million U.S. dollars. Should be large-scale expansion of production capacity in the second half of 2010.

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