Under China’s “high-quality productivity” initiative, a growing number of chip startups in China are opting to terminate their IPO processes to prioritize mergers and acquisitions, aimed at concentrating resources on technological breakthroughs in the sector.
The Shanghai Stock Exchange (SSE) recently announced the termination of the planned IPO for Hangzhou Semiconductor Wafer Co. Ltd., a silicon wafer manufacturer. This decision was due to the expiration of the company’s financial information validity period, which was not updated within the required timeframe, leading to the SSE halting the review process in accordance with listing rules. Although Hangzhou Semiconductor Wafer’s IPO prospectus was accepted in August 2022, it did not progress beyond the initial inquiry stage.
Hangzhou Semiconductor Wafer is not alone in this trend. According to Jiwei, 36 semiconductor companies across the three major A-share exchanges terminated their IPO reviews in the first half of this year, nearly double the number from the same period last year and approaching the total for all of 2023. These companies collectively aimed to raise CNY 38.332 billion (approximately US$5.8 billion), with an average target of CNY 1.065 billion.
Examining the timing of these terminations, Jiwei noted six in January, four in February, two in March, four in April, nine in May, and eleven in June, indicating a notable increase in terminations in the latter months, especially June, which saw the highest number in the first half of the year.
Sources familiar with the matter cited three primary reasons for the surge in terminated IPOs among Chinese chip companies. Firstly, China’s securities regulator has intensified efforts to curb financial misconduct, allowing only high-quality firms to proceed with public offerings. Secondly, some companies withdrew their applications due to weaker-than-expected financial results, failing to meet heightened market expectations. Thirdly, new policies have raised the bar for listing qualifications, making it more challenging for companies to meet the required criteria.
In a move to optimize resource allocation and stimulate innovation, China recently introduced the “STAR Market Eight Provisions” in June, aimed at encouraging mergers and acquisitions among tech firms instead of prioritizing IPOs. Yicai reported that the China Securities Regulatory Commission aims to create a conducive environment that fosters growth and innovation, particularly among tech firms possessing critical technological capabilities, often referred to as “hard technology.”
Insiders close to the Chinese securities regulator informed Yicai that China intends to support mergers and acquisitions for STAR Market-listed companies, including those that are currently unprofitable but show promising technological potential. The overarching goal is to enhance the long-term sustainability and growth prospects of these companies.
Meanwhile, experts quoted by the China Securities Journal highlighted the STAR Market Eight Provisions’ emphasis on supporting “hard technology” sectors through measures such as refinancing and enhanced mechanisms for identifying enterprises with promising technological innovations.
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