BYD Semiconductor Shenzhen IPO stymied by China govt probe

By Elles Houweling

Following a regulatory probe into Bejing Tian Yuan Law Firm by the China Securities and Regulatory Commission (CSRC), 42 companies have been forced to put their initial public offerings (IPO) on ice. Another 18 companies that were already listed had to halt their capital expansion projects. Among the companies required to suspend their IPO was BYD Semiconductor, the chip arm of the Chinese electric vehicle (EV) maker BYD.

The incident was flagged by the Shenzhen Stock Exchange on Saturday and follows BYD’s announcement in May that it had filed to list its semiconductor arm on Shenzhen’s Nasdaq-style ChiNext exchange. Subsequently, the company said that its board of directors had agreed to spin off BYD Semiconductor.

According to the filing, the company had aimed to raise 2.69bn yuan ($413.83m).

One probe implicating 42 companies

On August 18, the CSRC launched a probe into Beijing Tian Yuan Law Firm, as well as accountancy firm Zhongxing Caiguanghua, securities management firm Hualong and asset management firm Kaiyuan Assets.

Like BYD Semiconductor, 42 companies associated with the companies mentioned above were forced to put their listing plans on hold. Another 18 listed firms had to halt their financial restructuring plans.

According to various Chinese news sources, the incident was triggered by Blue Mountain Technology, which was first investigated in 2020 for financial fraud. At the time, Beijing Tian Yuan Law Firm acted as the company’s legal counsel. As a result, the CSRC announced in November that it had also launched an probe into the law firm.

As per the exchange’s rules, BYD Semiconductor and the other candidates can resume their applications when the investigation into the law firm is completed or if they change their law firms.

The new advisers have three months to conduct due diligence and check the work of the previous lawyers for the applications to proceed further. If the reviews are satisfactory, the IPO candidates can resume their listing plans.

The suspension comes amid a time of heightened scrutiny from regulators in China. Earlier this year, several tech companies halted their IPO plans following headline-making fallout regarding the country’s dominant ride-hailing app, Didi Chuxing. The company became the victim of several national investigations a few days after its New York Stock Exchange debut.

However, the suspension of BYD Semiconductors IPO did not have any impact on the carmaker’s Hong Kong-listed shares. BYD closed 4.8% higher on Monday. Its Shenzhen-listed shares added 1.6%.

Analysts suggested that the setbacks to BYD Semiconductor’s listing plan were likely to be temporary.

“The suspension of the spin off-plan can be resolved by appointing a new lawyer,” Kenny Ng Lai-yin, a strategist at Everbright Sun Hung Kai Securities, told the South China Morning Post. “Investors have confidence that the spin-off plan will go ahead eventually.”

The world is grappling with an ongoing semiconductor shortage, as the supply chain has struggled to keep up with booming demand following market shifts and production bottlenecks during the Covid-19 pandemic.

BYD Semiconductor is China’s largest manufacturer of automotive microcontroller chips, which are vital components in modern cars, used for everything from seats and windows to steering and anti-lock brakes.

According to GlobalData’s deals database, the company secured $266.17m in a Series A funding round in May 2020. Investors include Sequoia Capital China, SDIC Innovation Investment Management and CICC Capital Management.

In June, BYD raised another $112.93m in its Series A+ funding round, backed by Semiconductor Manufacturing International Corporation (SMIC), SK, Lenovo Group, BAIC Motor, Xiaomi and SAIC Motor, among others.

The company competes directly with major chipmakers, including Germany’s Infineon and Rohm Semiconductor in Japan.

Fujifilm beefs up semiconductor business

In a separate deal, Fujifilm announced a big investment into its semiconductor production capabilities, earmarking 70bn yen ($637m) over the next three year period to bolster this side of the business.

The figure represents a spending leap of over 40% from the previous three-year period and was driven mainly by the global demand for chips.

According to Nikkei Asia, Fujifilm is “particularly focused on photoresists used for printing circuits onto silicon wafers” and will focus on “production of resists for extreme-ultraviolet lithography machines, used to make advanced chips of 5 nm or less.”