Under China's "high-quality productivity" initiative, an increasing number of China-based chip startups have seen their IPO processes withdrawn or terminated to support mergers and acquisitions rather than IPOs to focus resources on breakthroughs in the technology sector.
According to the Shanghai Stock Exchange (SSE), the planned STAR Market IPO for Hangzhou Semiconductor Wafer Co. Ltd., a manufacturer of silicon wafers, has been terminated. The cancellation occurred because the company's application exceeded the validity period for financial information and was not updated within the required timeframe.
As a result, the SSE halted the review process in accordance with their listing rules. Hangzhou Semiconductor Wafer had its IPO prospectus accepted in August 2022, but it did not proceed past the initial inquiry stage.
Hangzhou Semiconductor Wafer is not alone in terminating the IPO process. Jiwei reported that 36 semiconductor companies on the three major A-share exchanges terminated their IPO reviews in the first half of this year, about double that of last year's period and close to the total number of IPO terminations in 2023.
The total amount of funds they planned to raise was CNY38.332 billion (approximately US$5.8 billion). The average company planned to raise is CNY1.065 billion.
Jiwei reported that looking at the breakdown of when the 36 companies terminated their IPO applications, there were six terminations in January, four in February, two in March, four in April, nine in May, and eleven in June. This means that the number of terminations increased significantly in May and June, with June having the highest number for the year's first half.
China values chip industry consolidation
The report cited unnamed insider sources citing three main reasons for the recent surge in terminated IPOs among chip companies in China.
First, China's securities regulator has intensified its crackdown on financial misconduct, insisting that only high-quality companies are permitted to go public. Second, some companies withdrew their applications due to weak financial results, failing to meet the heightened expectations. Third, new policies have raised the bar for companies looking to list on the stock exchange, making it more challenging to meet the necessary criteria.
To improve resource allocation and foster innovation, China recently introduced laws, including the so-called STAR Market Eight Provisions" unveiled in June, to encourage mergers and acquisitions for tech companies instead of encouraging IPOs. Yicai reported that the China Securities Regulatory Commission aims to create a supportive environment that helps tech companies, particularly those with critical technological capabilities (so-called hard technology), thrive and innovate.
Sources close to the Chinese security regulator told Yican that China plans to support mergers and acquisitions for companies listed on the STAR Market. This initiative aims to facilitate the acquisition of promising technology firms, even if they are currently unprofitable. The ultimate goal is to enhance STAR Market-listed companies' long-term sustainability and growth prospects.
Meanwhile, the China Securities Journal reported experts believe the STAR Market Eight Provisions, which include measures to support refinancing, mergers and acquisitions, underscore the STAR Market's dedication to "hard technology" sectors. New mechanisms are being introduced to effectively identify enterprises with promising technologies.
