Tsinghua Unigroup Co., which is regarded as China’s national semiconductor team, has continued to see red flags over its debt problems, with news of two bond defaults breaking out in one day, and experts analyzing Ziguang’s acquisition strategy as problematic. Does Ziguang reflect the tip of the iceberg of China’s high-tech industry bubble? Is the local government working with the central government to promote the new infrastructure policy led by Xi Jinping?
China’s Ziguang Group, which once boasted of buying TSMC, has defaulted on a RMB 1.3 billion bond last month, followed by a RMB 5 billion corporate bond due on the 10th, and a USD 450 million corporate bond abroad, both of which it cannot repay. Ziguang Xin Sheng said that if the aforementioned U.S. dollar bonds default, it will lead to a cross-default on its $2 billion issue.
Purple Group said that due to liquidity constraints, the company was unable to raise sufficient funds as agreed and could not pay the principal and interest as scheduled.
Purple Group is one of the participants of “Made in China 2025”, which is self-sufficient in chip production in mainland China. After the debt crisis, it was rumored that the construction plans of Chengdu NAND plant and Chongqing DRAM plant were both facing suspension. The suspension of trading of the company’s USD bonds has been suspended since the afternoon of November 18, and the suspension will continue.
Purple relies on national team resources to expand debt vulnerability
Taiwan’s Central News Agency reported that the Purple Group has been making a lot of acquisitions with the resources of the “national team”. In 2013, the Purple Group acquired Spreadtrum Communications, a U.S. listed company, for US$1.78 billion; the following year, it spent US$9.11 billion to acquire Tridonic Microelectronics, a U.S. listed company; in 2015, the chairman of the Purple Group, Zhao Weiguo, boasted that he would acquire TSMC and MediaTek. The following year, the chairman of Purple Group, Mr. Zhao Weiguo, boasted that he would acquire TSMC and buy MediaTek. As of June 30, 2010, Purple’s total assets were RMB 296.49 billion and total liabilities were RMB 202.98 billion, according to its financial report. In 2012, prior to the M&A process, Purple’s total assets were only RMB 6.663 billion, and its total liabilities were only RMB 4.647 billion.
Taiwan Weekly reported that the semi-annual report on the bonds disclosed by Purple Group in the first half of 2009 showed that Purple Group’s total assets were RMB 274.88 billion and total liabilities were RMB 210.93 billion, of which RMB 580.51 billion of interest-bearing debts were due within one year, while Purple Group had only RMB 393.13 billion in cash on its books, so it was clear that there might be liquidity problems. It is clear that there may be liquidity problems. After Purple Group received RMB150 billion in funding from China Development Bank and Huaxin Investment in 2017, the fundraising road was no longer smooth, even though Purple subsequently tried to introduce state-owned enterprises Hainan United, Suzhou High Speed Rail New City and Shenzhen Investment and Control Investment, all of which ended in failure. After that, Purple issued a total of sixteen groups of bonds in China and abroad to raise funds.
Purple is known as “M&A maniac” and “snake swallowing elephant”. Taiwan’s Chinese Economic Research Institute of mainland economy assistant researcher Wang Guochen 11 interview with Radio Free Asia, pointed out that the Purple business strategy problems, “they mainly take mergers and acquisitions, access to foreign technology back to China production, pay high merger and acquisition costs, when the profit is not enough, the capital can not turnover, can not repay the debt, it burst out of the financial crisis. “
Wang Guochen said: “Purple a few years ago, the better part of the problem, such as memory storage, slowly divesting the parent company, this year, things will not be unexpected, Xi Jinping although he said to flip the chip, will not want to disorderly development, no strength of the enterprise blind investment.”
Wang Guochen said, Ziguang is not considered a state-owned enterprise, now many defaults are not state-owned enterprises, large state-owned enterprises default limited, should be the state to see Ziguang Semiconductor poorly run, so that it faces default, collapse, bankruptcy.
Xi Jinping led the chip independent local governments and enterprises “fake big empty”?
China’s leader Xi Jinping in the “14th Five-Year Plan” to continue to promote the goal of chip autonomy and science and technology to strengthen the country, in many places in China is setting off a “Great Leap Forward” type “national core” boom. But Wang Guochen pointed out that many enterprises to engage in the chip in the name of receiving subsidies, the actual speculation in the house. For example, a few months ago, Wuhan Dream Core, is to apply to the state plan to bet the first money, and so the state’s money remitted in, the company will be the first money remitted out, the same as doing no business, once the state’s money does not go in, there will be problems.
Wang Guochen said: “The local government is just to speculate in real estate, the value of that side to enhance the enterprise funding may not be to do the chip, after the people scouted over, just to Converse local government money, so those really big bosses see the local government money in, his first practice is to withdraw the money he previously invested.”
Wang Guochen said, the central government really want to develop high-tech or semiconductor, but the local government is not necessarily willing to do so, because high-tech to bet ten or twenty years to see results, local officials are promoted to see whether there are political achievements in five years, unwilling to do long-term things. From January to October this year, the proportion of local bets on new infrastructure financial amount is less than two digits, only about five percent, it can be seen that the central government shouted new infrastructure, local reluctance to develop, local only use the new infrastructure this “new hat” to ask for resources, not to do practical things, local governments also do not understand the new high-tech infrastructure.
Wang Guochen mentioned that the U.S.-China trade war sanctions SMIC, Huawei to ZTE International, Ziguang is not in the U.S. primary sanctions list, purely because of his poor management, high-tech industry bubble is not the only Ziguang, Tsinghua under the North Founder also defaulted earlier this year. It is expected that China’s high-tech industry will emerge one by one by mergers and acquisitions, especially high-tech is an oligarchic industry, like TSMC almost all the semiconductor foundry part, so ZiGuang want to get up from the back, the most rely on the Chinese mainland government money, early must be in a state of loss, to the end of the country is not to continue to support his enterprise, become his choice, the Chinese government will inevitably choose to support the real development of up The Chinese government will inevitably choose to support enterprises that can really develop, and those that cannot will be scrapped.
The Chinese government has declared that it will not save the “wild growth”?
The Chinese government has declared that it will not bail out the “wild growth” of Ziguang, and that the problems with Ziguang are related to the factional struggle of the Chinese Communist Party. Wang Guochen said that this year, regardless of corporate defaults and bank runs, the common feature is that the people in charge or important management have been prosecuted or arrested, which may be related to political factors.
Wang Guochen believes that it is the Chinese government does not want to step in to save Purple again, with a declarative flavor: “The Chinese government if you want him to default is going to let him default, the effect of the declaration, so that local governments, or some quasi-official, quasi-state enterprises know that mainland China does not allow such disorderly development of semiconductors, barbaric growth, but also to deal with some of the corruption. “
Soochow University business management department lecturer Lin Xiumin analysis, China’s development of semiconductor has always belonged to the state capitalism, for purple, before the state’s support, it is easy to succeed, purple can be said to be one of China’s largest semiconductor group, the emergence of default indicates that the debt is really big, because the United States and China under the trade war, blocking Huawei, ZTE, the mainland domestic demand for chips in an emergency, Xi Jinping led by all the people to leap core, all the people to refine the core, pouring the country’s efforts to develop independent chips, the emergence of thousands or even tens of thousands of so-called semiconductor companies, even originally sold seafood, fish balls, real estate and other companies, all claiming to do semiconductor instead, receive government subsidies.
Lin Xiumin believes that the warning signs of Ziguang reveal that it is not the government not to save, is unable to save, to Ziguang such an indicator of the chip maker are down, it is likely that China’s semiconductor industry will be washed away.
The chip is blocked to endanger the communist regime Xi will not see death?
Lin Xiumin said: “China is now all the use of surveillance systems chip, must have a chip, whether in Xinjiang, Tibet set up in the sky network equipment must have a chip, so once the chip is blocked, the political situation of the Chinese Communist Party is a very big threat, so Xi Jinping even if you do not like, but he will still go to the rescue, so (Purple) this matter on the development of China’s chip, is a very serious blow. serious blow, even if there is a political struggle, to the current national urgent need for semiconductors, will not let the purple light down, should be the hole in the purple light debt, too big to save.”
Lin Xiumin also mentioned that the worst of China’s development of semiconductors is not to pay attention to basic research, only hope to see results immediately, China’s development of strong are WeChat, Alibaba and other Internet software, the basic research underneath, such as semiconductors, physics, chemistry, chemicals, circuit design, less ink.
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