China Resources dominates Changdian Technology, how can Shuangxiong rejuvenate?.

28 Mar, 2024

On March 20th, Changdian Technology announced a suspension of trading. The reason is that we have received notifications from the company's shareholders, National Integrated Circuit Industry Investment Fund Co., Ltd. and Semiconductor (Shanghai) Co., Ltd., that they are planning the transfer of equity in the company.

For a while, the industry was eagerly anticipating who would accept Changdian Technology, sparking various speculations and associations within the industry. After being suspended for 5 trading days, the equity transfer of Changdian Technology has made new progress.

Yesterday evening, Changdian Technology announced that Panshi Hong Kong plans to acquire 22.54% equity for 11.658 billion yuan, and the actual controller of the company will be changed to China Resources. The former largest shareholder of the company, the large fund, will reduce its shareholding to 3.5%, while the second largest shareholder, Semiconductor Semiconductor, will no longer hold equity in the listed company.

And China Resources is also the actual controller of semiconductor giant China Resources Micro, with both chip giants under one ownership.


China Resources acquired control of 11.6 billion yuan, while Semiconductor Manufacturing withdrew.

In this transaction, there are two sellers: Big Fund and Semiconductor. One buyer: Panshi Hong Kong Limited or its affiliates.

The large fund transferred its 174 million shares of the company's shares (accounting for 9.74% of the total share capital) to Panshi Hong Kong or its affiliates; Core Semiconductor has also transferred its 229 million shares of the company (accounting for 12.79% of the total share capital) to Panshi Hong Kong or its affiliates. In terms of price, it is based on 29 yuan per share, which is a premium compared to the 28.25 yuan when Changdian Technology suspended trading.

In this transaction, the large fund will change its holdings of Changdian Technology from 236.89 million shares to 62.6 million shares, accounting for 3.50% of the company's total share capital; And the previous second largest shareholder, Semiconductor Semiconductor, no longer holds shares in Changdian Technology (sold out).

This large buyer, Panshi Hong Kong Limited or its affiliates, spent approximately 11.69 billion yuan to acquire a 22.54% stake in Changdian Technology.

So, what is the origin of this extravagant Panshi Hong Kong Limited or its affiliates?.

We can take a look at the equity penetration chart of Panshi Hong Kong. Panshi Hong Kong Limited was established in mid December 2023. From the disclosed equity structure, China Resources (Group) Co., Ltd. is its controlling shareholder with a 100% shareholding ratio.

Therefore, it can also be roughly understood that China Resources has now become the actual controller of Changdian Technology, with this 22.54% stake.


Two major issues are worth paying attention to.

There are two points worth paying attention to: first, the change of the actual controller; Secondly, the issue of industry competition.

In terms of the change of actual controller, before the completion of this share transfer, Changdian Technology had no actual controller. His previous first and second largest shareholders were the seller, Big Fund, and Semiconductor Manufacturing.

In the disclosure of the annual report of Changdian Technology, it is mentioned that the Big Fund is a national industrial investment fund established to promote the development of the national integrated circuit industry. It operates in the form of equity investment and exits the invested projects at the appropriate time. It promises not to seek control of equity or engage in specific operational management work for all integrated circuit packaging and testing industry enterprises invested in. That is to say, large funds are not responsible for actual control.

Looking at the second largest shareholder, Semiconductor Technology, the ultimate controlling shareholder behind this company is SMIC. Previously, a journalist, as an investor at Changdian Technology, stated that "(equity transfer) is a change at the shareholder level, and the company operates independently without any production changes due to shareholder changes, which have no impact on production and operation." As for whether there is contact with new investors, the person said, "This is a behavior on the shareholder side, and (we) may not be able to make a decision.".

However, after yesterday's transaction, Changdian Technology has changed its actual controller, which is China Resources as analyzed earlier.

In fact, China Resources Group is very large. According to the official website of China Resources Group, the group's business covers six major fields: large consumption, comprehensive energy, urban construction and operation, big health, industrial finance, technology and emerging industries. It has 25 business units, two directly affiliated institutions, 3077 physical enterprises, and approximately 390000 employees.

Its subsidiaries include China Resources Land, China Resources Beer, China Resources MixC Life, and China Resources Power, all of which are well-known companies. For semiconductor professionals, the most familiar company is China Resources Micro, which is also a subsidiary of this group.

China Resources has always been the actual controller of China Resources Micro, the other half of the domestic conductor giant.

Therefore, it also brings a second issue: industry competition.

China Resources Micro has always been a leading IDM semiconductor enterprise in China, with a current production capacity of over 70000 8-inch and over 200000 6-inch wafers in contract manufacturing; In terms of sealing and testing, large-scale production bases have been established in Wuxi, Shenzhen, Dongguan, and Chongqing.

The source of China Resources Micro Manufacturing and Testing Base is the official website of China Resources Micro.

According to last year's financial report, China Resources Micro is expected to achieve a revenue of 9.9 billion yuan in 2023, a year-on-year decrease of 1.59%; Realized a net profit attributable to the parent company of 1.48 billion yuan, a year-on-year decrease of 43.45%. When answering investor questions this year, CR Micro also stated that the company's capital expenditure in 2023 will mainly be used for the construction of a 12 inch production line in Shenzhen and an advanced power testing base in Chongqing. In 2024, the 12 inch production line in Shenzhen is still in the investment cycle, and the company will continue to increase its efforts in mergers and acquisitions.

In fact, Changdian Technology's announcement also stated that there is overlap or potential competition between China Resources Micro, a subsidiary of China Resources, and our company in terms of external sealing and testing business.

Currently, in order to address this issue, China Resources has issued a commitment letter on avoiding industry competition.

One of the terms is: within 5 years after the completion of this transaction, in accordance with legal procedures, including but not limited to custody, asset restructuring, one party's cessation of related business, adjustment of product structure, establishment of joint venture companies, etc., to resolve business overlap and potential competition issues between the company and its controlled enterprises (excluding Changdian Technology and its controlled enterprises) and Changdian Technology and its controlled enterprises, in order to comply with regulatory requirements on industry competition issues.

If we look at the issue of industry competition, it is very likely that in the future, China Resources Micro will spin off its packaging and testing outsourcing business and sell it to Changdian Technology.


The large fund has cumulatively cashed out over 7.6 billion yuan.

Da Fund made its first investment in Changdian Technology in 2014.

At that time, Changdian Technology, along with Big Fund and Semiconductor, jointly established a merger and acquisition fund, with Big Fund contributing $300 million to assist Changdian Technology in completing its acquisition of Singaporean Startech Jinpeng for $780 million.

In June 2016, Changdian Technology issued a targeted issuance to acquire the equity of the merger and acquisition fund held by Da Fund. After the conversion, Da Fund held 9.54% of Changdian's equity, becoming the largest shareholder. The large fund invested 2.602 billion yuan to participate in the private placement of Changdian Technology and was promoted to the largest shareholder, with a shareholding ratio of 19%.

In April 2021, Changdian Technology raised 5 billion yuan through another non-public offering. At that time, the shareholding ratios of Big Fund and Semiconductor were diluted to 15.31% and 12.86% respectively, but they were still the top two shareholders of the company.

Prior to this, Big Fund began disclosing two reduction plans in August 2020. By mid November 2021, the large fund had cumulatively reduced its holdings of 67.6483 million shares of Changdian Technology stocks, with a total reduction amount of approximately 2.572 billion yuan.

As of the end of 2021, Dafu Fund and Xindian Semiconductor held 239 million and 229 million shares of Changdian Technology, respectively. After the completion of this share transfer, the number of shares held by Da Fund in Changdian Technology has changed from 236.89 million shares to 62.6 million shares, with a reduction amount of 5.054 billion yuan.

From this perspective, the large fund still retains 3.5% of its shares and has accumulated a cash out amount of approximately 7.626 billion yuan from Changdian Technology.


What do industry professionals think?.

For China Resources Group to become the actual controller of Changdian Technology, industry insiders analyzed to reporters that the semiconductor industry is an industry with detailed division of labor, close cooperation, long industrial chain, and numerous links. The semiconductor industry in China and even the world is constantly developing, and the market growth prospects are promising, requiring more high-quality companies to cooperate and achieve win-win results. China Resources Group has a comprehensive consideration and sufficient judgment of the market, and the layout of different links in the semiconductor industry helps to enhance China Resources' industrial position in the industry and accelerate industrial integration.

"China Resources' acquisition of Changdian Technology can be described as a strong alliance." According to semiconductor industry insiders, Changdian Technology is the largest semiconductor packaging and testing giant in China and the third in the world, and is an internationally operated semiconductor packaging and testing company; China Resources is a highly internationalized state-owned enterprise, and its subsidiary, China Resources Micro, is the leader in power semiconductor IDM. If the two can collaborate in multiple aspects such as production capacity, customers, and management, it is not only expected to achieve a "1+1>2" effect, but also can drive the improvement of the semiconductor packaging and testing technology level of the entire group.

"The deeper background of this transaction is that central enterprises are accelerating their participation in more high-tech industries and not being bystanders in the high-tech industry." From the perspective of state-owned asset reform, some market insiders interpret that with the promotion of the State owned Assets Supervision and Administration Commission of the State Council and others, central enterprises may accelerate their pace of entering the high-tech industry.

However, there is still uncertainty about whether the matter can be ultimately completed and implemented.

Changdian Technology warned in the announcement that this transaction still needs to be reviewed and approved by the board of directors of China Resources (Group) Co., Ltd., and requires review and approval from authorized state-owned asset regulatory agencies, as well as other possible approvals or approvals required by relevant laws and regulations. It also needs to obtain compliance confirmation from the Shanghai Stock Exchange and complete the relevant procedures for the transfer of shares through agreement at the Shanghai branch of China Securities Depository and Clearing Co., Ltd.