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Race for Silterra heats up

Race for Silterra heats up

03 Nov 2020

A new bid by Green Packet Bhd has turned up the heat on the ongoing tussle for Silterra Sdn Bhd, Khazanah Nasional Bhd’s loss-making chip manufacturer.

Sources familiar with the ongoing developments said the tech firm put in two offers last month, an updated binding offer of US$62.5mil assuming the equity conditions were retained and US$81.2mil in an alternative binding offer, if the equity conditions were removed.

How this came about was after Khazanah allegedly shifted the goalpost by opening up the bids to foreign investors, which saw two firms coming in with big bucks to compensate for their failure to meet the local equity criteria, turning the Silterra sale into a whole new ball game.

Taiwanese semiconductor giant Foxconn was said to have ascribed a US$125mil enterprise value for Silterra, of which it would pay US$87.5mil for a 70% stake.

German-based group of semiconductor foundries X-Fab put in a less attractive offer of US$70mil, but was still better than the initial offers by Green Packet and Dagang Nexchange Bhd (DNeX) at US$56.8mil and US$32.7mil respectively.

The equity conditions set by the International Trade and Industry Ministry (Miti) and the Malaysian Investment Development Authority (Mida) required Silterra’s manufacturing plant to be majority local-owned, while foreign participation can only be in minority stakes.

It was clearly spelt out that Siltera had to maintain its equity structure of 55% local, out of which 30% has to be of bumiputra status while the foreign shareholding is up to a maximum of the remaining 45%.

It is learnt that Green Packet and DNeX were told to update their bids after Khazanah extended the tender from its earlier deadline of July 31 to Oct 9 and they were told to assume that the equity condition was removed and Khazanah could retain up to 30%.

Sources said in Green Packet’s latest bid, if the equity conditions were retained, its offer of US$62.5mil includes US$5.7mil for 10% free shares to a Malaysia Inc special-purpose vehicle (SPV) as a as strategic minority shareholder to safeguard national interest in the electrical and electronics (E&E) sector.

“The government can decide if it wants to give the 10% to Mida, Khazanah or the Science, Technology and Innovation Ministry (Mosti).

“This is to allow the government to continue exercising its influence to ensure continuous support towards the local semiconductor and E&E sectors, ” sources said, adding that this arrangement would lead to an effective local ownership of 59.5% with an effective bumiputra ownership of 37.2%.

In Green Packet’s alternative binding offer of US$81.2mil, assuming the foreign ownership control is lifted, sources said the group has proposed that Khazanah retain a 20% stake in Silterra.

Over time, Green Packet’s foreign partner Orient Excellent, which expressed its commitment to fully fund Silterra’s future capital expenditure requirements, will result in a foreign-majority shareholder roster.

Out of the 80%, Green Packet will eventually hold 43.8% while Orient Excellent – a private equity fund which has China’s Finance Ministry and National Social Security Fund as among its shareholders – will hold the other 56.2%.

The effective local ownership here is expected to be 55%, with an effective bumiputra stake of 39.3%.

It is said that the investment by Green Packet will be made through the RM500mil BumiTech Fund, a private equity fund which aims to support the growth of late-stage high technology companies owned by bumiputra entrepreneurs to upscale, expand local and global networks and eventually export technology products and services.

Sources also said what Green Packet had in store for Silterra would be the access to a large network of semiconductor companies such as its collaboration partner Huaqiang Group, which owns the largest distributor of semiconductor components in China, and Konka, a leading electronic conglomerate, also in China.

Silterra will also be the key element in building the Asia SemiCon Hub, the largest semiconductor industrial park in the country which aimed to attract up to RM68bil in investments and create more than 500,000 new jobs over the next 30 years, said the source.

Meanwhile, those with knowledge of the deal said there were chances that Green Packet might not want to take up the Silterra offer after December or January.

This was due to the emergence of newer semiconductor wafer plants in China that were looking at kicking off production in the second half of next year or by 2022.

“If Khazanah doesn’t sell it before that, I don’t think they can get any buyers in the future.

“This is the fourth time they are trying to sell Silterra and this will also be the last time, ” the source said.

And the main reason why the first three deals did not go through was because the only buyers interested were foreign companies.

“The lifting of the equity conditions in terms of foreign ownership is not within Khazanah’s authority.

“Over the last three times when they wanted to sell Silterra, Mida also did not approve, because it felt that Siltera was a vital component of the whole E&E ecosystem up north, ” sources said, adding that without Silterra, it will put a dent on the country’s foreign direct investment (FDI).

The source also warned of a huge political issue if Silterra was sold to Foxconn, as its founder and chairman Terry Gou had run for Taiwanese presidency before.

Gou moved quite a number of its Foxconn manufacturing plants from China to Vietnam in his 2019 presidential bid.

“There is a potential political liability for Malaysia as a small country to stand between a potential conflict between Foxconn and mainland China.

“If we let go of Silterra, a national strategic asset to Foxconn, it will kill the future of Silterra, ” sources said.

Source: The Star Posted on : 03 November 2020