Dagang NeXchange Berhad (DNeX) and Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (Limited Partnership) (CGP Fund) have signed a share sale and purchase agreement (SSPA) with Khazanah Nasional Berhad (Khazanah) to acquire 100 percent stake in Khazanah’s semiconductor unit, SilTerra Malaysia Sdn Bhd (SilTerra), for RM273 million.
SilTerra was established by the Government of Malaysia in 1995 as a strategic national interest to promote front-end semiconductor manufacturing and a catalyst for high technology investments in Malaysia.
Based on the SSPA, DNeX will acquire a 60 percent equity interest in SilTerra while CGP Fund will acquire 40 percent equity interest.
The purchase for DNeX’s 60 percent stake will amount to about RM163.8 million, which will be funded through a combination of proceeds to be raised from a proposed private placement. The placement will be internally generated either in the funds or the borrowings.
Additionally, DNeX and CGP Fund have also committed to a capital injection of at least RM200 million by way of subscribing for new ordinary shares to be allotted and issued by SilTerra.
From the capital injection, RM150.0 million will be utilised as capital expenditure to upgrade SilTerra’s equipment and manufacturing capabilities in new technologies with the remaining RM50.0 will be allocated for working capital.
The acquisition is expected to be completed by the end of the second quarter of 2021 with the capital injection expected to be within 180 days thereafter.
“We believe SilTerra can ride on the current shortage in the global semiconductor market and turn a better financial performance in the coming years,” Group Managing Director of DNeX, Syed Zainal Abidin Syed Mohamed Tahir said.
He also mentioned that a key factor for SilTerra’s turnaround plan lies in significantly increasing factory utilisation and gradually changing the product mix to higher profitability products.
Additionally, DNeX will plan to integrate the collaboration to provide access to new markets, transfer new technology, and optimise existing operations and management of resources to adapt to the new businesses.
“The acquisition is part of DNeX’s expansion and diversification plan. Being in the manufacturing industry, the consolidation of SilTerra’s financial performance, which is in the form of recurring income from its manufacturing contracts will complement DNeX existing earnings,” he added.
DNeX is optimistic that the business will grow at a strong pace due to the current semiconductor chip shortage coupled with increasing demand for semiconductor chips in the post-Covid 19 world.
According to the Semiconductor Industry Association, the global semiconductor market has shown resilience to headwinds caused by the Covid-19 outbreak and other macroeconomic factors. The global sales of semiconductors are expected to further grow by 8.4 percent in 2021, from an increase of 5.1 percent in 2020.
Upon completion of the proposed acquisition, contribution from SilTerra is expected to account for 25 percent or more of the company’s consolidated net profits and consolidated net assets moving forward.
“With regards to turnaround experience related to SilTerra, we were involved in the acquisition of Silex Microsystems (Silex), a pure-play Micro-electro Mechanical Systems (MEMS) foundry based in Sweden, in 2015.
After the acquisition, CGP succeeded in completing all business goals set forth at time of acquisition, and Silex has grown to be the largest pure play foundry by revenue for MEMS devices in the world according to market research firm, Yole Development’s June 2020 report,” Managing Partner of CGP, Cadol Cheung said.
CGP Fund was established as a private equity fund in 2014 focusing on the semiconductor industry in China.