Alibaba-led group nears 50b yuan Unigroup takeover

Beijing

A CONSORTIUM led by Alibaba Group Holding has emerged as the frontrunner to take over Tsinghua Unigroup, a deal that could fetch more than 50 billion yuan (S$10.6 billion) to help keep China's indebted chip champion afloat.

The Chinese central government is leaning towards the Alibaba-led offer given the e-commerce giant's financial heft and the potential synergies with its own cloud and semiconductor business, people familiar with the matter said. The consortium, which includes funds backed by the Zhejiang government, is edging out several competitors for Beijing-based Unigroup, several other sources said, asking not to be identified as the information is private.

A successful deal could help avert one of China's biggest potential corporate failures, while securing for Alibaba valuable chip know-how and a supply of semiconductors to fuel the country's largest cloud computing platform. While the transaction is expected to be completed as soon as December, negotiations are ongoing and details on timeline, deal size and a final buyer could still change, they said. Shares in Unisplendour, one of the Tsinghua group's biggest listed entities, surged as much as 7.6 per cent in Wednesday afternoon trading in Shenzhen.

Billionaire Jack Ma's empire is mostly known for its e-commerce leadership, but his Hangzhou-based firm has in recent years made enormous headway into computing and last month unveiled one of the country's most advanced chips. A deal could help Alibaba score points with Beijing, which punished the e-commerce giant for monopolistic behaviour but also wants to reduce its reliance on the US for chips that power everything from phones to cars.

Any deal is likely to include conditions for restructuring Unigroup's 100 billion yuan-plus of onshore and offshore debt, another source said. Alibaba representatives had no immediate comment, while representatives for Unigroup and Zhejiang did not immediately respond to requests for comment. The State Council Information Office did not respond to a request for comment.

Aside from the Alibaba-led consortium, several state-backed companies including semiconductor investment fund JAC Capital, Wuxi Industry Development Group, and Beijing Electronics Holdings also weighed bids, the sources said. Investors are placing wagers on a better deal for Unigroup as President Xi Jinping advances a self-sufficiency agenda in key technologies in a strategic race with the US. Three out of the 4 US dollar bonds sold by the firm have hovered around their highest levels - albeit still distressed - since at least early November, after their best month in June. The Beijing-based company affiliated with prestigious Tsinghua University - Xi's alma mater - remains a linchpin in a race for technological supremacy with the US.

Unigroup expanded rapidly during a decade-long stimulus blitz that fuelled heady economic expansion through bingeing on credit. Unigroup and its affiliates went on an acquisition spree, buying up foreign names including RDA Microelectronics and Spreadtrum Communications en route to building China's most sophisticated maker of 5G chips in Unisoc.

H3C, a joint venture with Hewlett Packard, is a key server supplier to the Chinese government and state-owned enterprises. And in 2017, it unveiled its signature project: the US$22 billion Yangtze Memory Technologies, which competes against Micron Technology and Samsung Electronics. The company at one point harbored aspirations to become the nation's first giant in the global semiconductor industry and once planned a US$23 billion bid for US memory-chip giant Micron. But concern over the scale of China's resulting debt mountain prompted a deleveraging campaign from around 2017, choking off the spigot for borrowing. That coincided also with a newfound impetus to restructure the sprawling corporate empires that have sprung up around the nation's top universities, including Tsinghua. BLOOMBERG