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China’s would-be chip darling Tsinghua Unigroup bedevilled by debt and bad bets

  • Unigroup has now either defaulted or had cross-defaults triggered on seven onshore and offshore bonds worth about US$3.6 billion
  • The state-backed conglomerate has warned it may not be able to make upcoming bond payments

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A researcher plants a chip on an interface board at Tsinghua Unigroup’s research centre in Beijing. Photo: Reuters
Reuters
Tsinghua Unigroup, a Chinese conglomerate that has long sought to become a semiconductor powerhouse, is now caught between a rock and a hard place, as debt woes mount while key chip units are failing to thrive, sources with knowledge of the matter said.
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Best known for an unsuccessful US$23 billion bid for US chip maker Micron Technology in 2015, Unigroup in November shocked investors with a default on a 1.3 billion yuan (US$200 million) bond. Including that bond, Unigroup has now either defaulted or had cross-defaults triggered on seven onshore and offshore bonds worth about US$3.6 billion, according to Refinitiv data.

The state-backed conglomerate, which has warned it may not be able to make upcoming bond payments, had some US$31 billion in debt as of late June, more than half of which was due to mature in a year’s time, filings show. In contrast, it had roughly US$8 billion in cash and cash equivalents.

The crisis has raised questions about Unigroup’s long-term stability and how much backing the conglomerate, which is 51 per cent owned by Tsinghua University, will continue to be given by Beijing. The central government, keen to develop a weak domestic chip industry, has invested billions of dollars in Unigroup projects as well as in other chip makers such as Semiconductor Manufacturing International Corp.

Unigroup’s efforts to raise more capital have, however, been stymied by the university’s attempts to offload its stake, in line with a change in government policy in 2018, which called for higher education institutes to divest their business holdings.

Many banks have been reluctant to lend money because Unigroup may soon be without its parent company, but at the same time, it cannot easily find a new strategic investor due to its heavy debt load, said a source with knowledge of the matter.

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“And lots of the company’s subsidiaries are still not mature enough to go to capital markets, and not mature enough to generate positive cash flow,” the source said.
Zhao Weiguo, chairman of Tsinghua Unigroup, makes a speech at the Big Data and Smart Technology Summit, part of the 2018 Smart China Expo, held in the southwestern city of Chongqing on August 23, 2018. Photo: Simon Song
Zhao Weiguo, chairman of Tsinghua Unigroup, makes a speech at the Big Data and Smart Technology Summit, part of the 2018 Smart China Expo, held in the southwestern city of Chongqing on August 23, 2018. Photo: Simon Song

Some attempts to sell the university’s stake to local authorities, such as the Shenzhen government, have fallen through, according to public filings. Sources familiar with the matter said Unigroup is continuing talks with other local governments about potential investment.

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