China's biggest chipmaker Semiconductor Manufacturing International Corp's (SMIC) shares surged a staggering 246 percent in its first day of trading at the Shanghai Stock Exchange after the company sold shares in an offering that now makes it one of the country's most valuable publicly listed companies. The sale of shares is the biggest on the Chinese mainland in a decade.
SMIC's listing comes amid growing competition between the United States and China to attain tech supremacy. Also, SMIC's secondary listing at the Shanghai Stock Exchange comes at a time when semiconductor stocks are taking a beating following declining sales owing to the coronavirus pandemic.
SMIC opened at 95 yuan on its Shanghai debut, selling 1,685,620,000 shares at 27.46 yuan per piece. This will allow the Shanghai-based chipmaker to raise a whopping 53.2 billion yuan or $7.6 billion if it fully exercises a greenshoe option. This is more than double the initial target and is a result of the sharp rise in the price of its Hong Kong-listed shares owing to the excitement ahead of the Shanghai debut.
SMIC has also managed to attract a large number of big institutional investors like China Integrated Circuit Industry Investment Fund, Singapore's sovereign fund GIC Pte and the Abu Dhabi Investment Authority that participated in the chipmaker's share offering. The chipmaker has also acknowledged that it is charging a price at least four times higher than its domestic peers.
However, the company's first week of trading is likely to be dramatic given that the Shanghai STAR Board is the only stock exchange on the Chinese mainland with no limit on stock price movement in the first five days. Following that there is a 20 percent up or down limit compared with 10 percent at other stock exchanges.
Biggest Debut in a Decade
SMIC's share sale is the biggest on record on the Chinese mainland in a decade. The biggest so far was Agricultural Bank of China's more than $22 billion dual Hong Kong-Shanghai listing in 2010. The company's debut comes at a time when China and the US are racing towards attaining global tech supremacy.
China is the manufacturing hub of semiconductors which is dominated by several big US companies like Apple, Qualcomm and Micron Technologies. US chipmakers dominate 55 percent of the semiconductor market. However, China over the past few years has been trying to strengthen its presence in the semiconductor industry.
SMIC is part of China's Science and Technology Innovation Board, better known as the STAR Board, an initiative by the country's government to create a Nasdaq-style environment for publicly-listed tech firms. Companies making their debut on the Shanghai STAR Board are known for their wild stock price movement on their first day of trading.
SMIC is one of the key players in China's ambition to become the global leader in semiconductors. Its biggest rivals are Taiwan Semiconductor Manufacturing Company and Samsung Electronics but so far it has lagged in the race. The money raised by SMIC on debut is likely to be invested in its technology and research in a bid to catch up with both these firms.