23/10/2021

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China carmaker BYD’s chip unit IPO plan halted by regulatory woes

BYD, China’s biggest carmaker by market valuation, is looking to list its chipmaking arm in Shenzhen.    © Getty Images

CHENG TING-FANG and LAULY LI, Nikkei staff writers | China

TAIPEI — Chinese electric car maker BYD’s plan to list its semiconductor arm has been suspended due to a regulatory probe into the law firm advising the company on the deal, in the latest sign of Chinese authorities tightening their scrutiny of local tech companies and capital markets.

BYD Semiconductor, China’s biggest maker of automotive microcontroller chips, filed an application in May to list on Shenzhen’s ChiNext, a Nasdaq-style market supervised by Shenzhen Stock Exchange. The company aimed to raise at least 2.68 billion yuan ($412 million) for automotive chip development, according to its prospectus. The stock exchange accepted the IPO application for review in June.

That plan has been put on hold, however, due to a regulatory probe by the Security Regulatory Commission into Beijing Tian Yuan Law Firm, one of China’s biggest legal service providers. The law firm, which has helped companies like Bilibili and Nongfu Spring with their own listing plans, was advising BYD on its chip unit’s market debut.

“The [Shenzhen Stock Exchange] needed to suspend the review of such IPO plans” due to the probe, Shenzhen Stock Exchange said in a public notice posted over the weekend, adding that it halted its review of BYD’s application on Aug. 18. About 10 other listing plans being advised by Beijing Tian Yuan have also been suspended, though neither the Shenzhen Stock Exchange nor the Security Regulatory Commission gave a reason for the investigation.

BYD Semiconductor competes directly with international players such as Infineon of Germany and Rohm Semiconductor of Japan. Investors had said the company was poised to be the “top China automotive chip stock.”

Its parent company BYD is the biggest Chinese automaker by market cap and is backed by U.S. investment heavyweight Warren Buffett. It spun off the chip arm it founded back in 2004 this year to accelerate its chip development.

Several other listing plans involving other law firms, accountancies and securities companies being probed were also halted, according to the public notice, though no reasons for these investigations were given either.

A venture capital source familiar with the IPO process in China told Nikkei Asia that the BYD unit’s listing plan has not been terminated but could be delayed by several months while the company sorts out the issue and updates any necessary paperwork.

If BYD Semiconductor’s IPO plan were to be cancelled, however, it would mark the first major chip company to hit regulatory hurdles in seeking public financing since Beijing stepped up its scrutiny of corporate listings. Chinese authorities scuttled what would have been a blockbuster IPO by Ant Group last year and launched cybersecurity reviews of Didi Global following the ride-hailer’s listing in the U.S. Regulators also recently tightened scrutiny of the country’s private education sector.

BYD’s listing plan for its chip unit comes as the world battles a severe chip supply crunch that has hit a swath of industries from PCs, servers, home appliances to automobiles. Major economies are all scrambling to strengthen their local semiconductor industries and build more resilient supply chains due to national security concerns.

BYD controls more than 70% of its semiconductor arm, while BYD Semiconductor counts its parent as its biggest client, accounting for 59% of its revenue in 2020. Other notable investors include the investment fund of Xiaomi, the world’s second-largest smartphone maker which announced plans to enter the EV market by 2024.

BYD, BYD Semiconductor and Zhu Xiaohui, a partner at Beijing Tian Yuan Law Firm who directly supervised the listing of BYD Semiconductor, did not respond to Nikkei Asia’s requests for comments as of publication.

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