Ziqi East: The reason behind Zhilu Jianguang’s joint takeover of Ziguang Group

Recently, “the arrest of Zhou Zhuohua with an annual turnover of 1.6 trillion yuan in chips involves many celebrities”, “The dispute between Lenovo and Sima Nan was detonated by Zhang Jie, an insider of the Chinese Academy of Sciences,” and “Hengda Group announced on December 3 that it could not perform the guarantee Obligations” and other big melons let the people eat melons at the end of the year. But for the semiconductor industry, the biggest thunder is the bankruptcy and reorganization of Ziguang Group. The biggest melon is the Jianguang Zhilu Consortium. After multiple rounds of competition, it broke the siege, and finally won the second choice with Alibaba. The manager of Ziguang Group decided that the Zhilu Jianguang Consortium would become the restructuring organization of Ziguang Group.

What caused the managers of Ziguang Group to choose the Zhilu Jianguang Consortium? Let’s explore the reasons behind step by step.

After the mystery was revealed, to the industry, it was both surprising and reasonable. What is unexpected is that Alibaba is so strong and funded. In the field of semiconductor, a national strategic industry that requires huge investment from the state, it has not been selected? It is reasonable to say that although Zhilu Jianguang is not as large as Alibaba in terms of asset volume and group scale, in the course of the development of the semiconductor industry, through overseas mergers and acquisitions and industrial focus in the semiconductor field, the two-wheel drive The space-time compression method has completed the entire industrial chain layout of integrated circuits from materials to chip design, manufacturing, packaging and testing, and application, which takes 20-30 years to form within 5-6 years. The most successful semiconductor industry group in the industry chain has a solid business foundation in the semiconductor industry, and has the basic conditions to integrate the semiconductor business of Ziguang Group. From the perspective of industry and management, only the Zhilu Jianguang Consortium has the ability to reorganize Ziguang Group. With this ability, at the same time, only the Zhilu Jianguang Consortium is willing to take on this difficult task.

Let’s take a look at the difficulties encountered by Ziguang Group and where are the difficulties in restructuring? What kind of semiconductor industry group is Zhilu Jianguang Consortium, and does it have the ability to solve the debt problems of Ziguang Group and control the business of Ziguang Group?

As of June 2020, the group’s total liabilities reached 202.938 billion yuan, a sharp increase of nearly 44 times from the 4.647 billion yuan at the end of 2012. What is more noteworthy is that of the 202.938 billion yuan of debt, current liabilities are 119.211 billion yuan. Only short-term loans and non-current liabilities due within one year, the total amount of the two short-term liabilities is 79.428 billion yuan. The blood loss is very serious; before 2020, the net cash flow of the entire group’s operating activities in the third quarter is 2.538 billion yuan. With the debt scale of Ziguang Group, the annual interest payment can reach about tens of billions. There are large areas of bond defaults and inability to pay interest. Its hematopoietic ability is very strong. Ziguang Tongchuang burns hundreds of millions of dollars every year. It is conservatively estimated that the Yangtze River storage may need to invest more than 500 billion yuan in the next ten years, that is, about 50 billion yuan per year. The hematopoietic capacity is the key to revitalizing the Yangtze River storage, and it also revitalizes the entire Yangtze River. The key of Ziguang Group, and the performance of hematopoietic ability in financial statements is its operating cash flow, which is to be positive within a predictable period, and hematopoietic ability at a deep level is manifested as key factors including technology research and development, operation, and marketing. The company’s ability to continue operations requires very high requirements for operators. Therefore, Ziguang Group’s difficulties are capital difficulties and operating difficulties. The difficulty of this restructuring of Ziguang Group is how to transfusion and hematopoiesis. The core and key is hematopoiesis. Blood transfusion is not a one-time job. To complete it, it requires continuous blood transfusion and nutritional supplementation within a few years, gradually reducing blood transfusion, and gradually rejuvenating life through strong hematopoietic ability.

Specifically, it is necessary to analyze the industrial structure and specific business units of Ziguang Group. From the perspective of industrial structure, Ziguang Group has borrowed to develop chip and cloud network business and form a high-tech industrial ecological chain from core to cloud. More than 60 acquisitions and investments have formed a layout of the entire industry chain from “core” to “cloud”, mainly using capital transfer methods such as east wall to supplement west wall, ten pots and five caps, and land enclosure loans to obtain development funds. Mode, the leverage ratio is very high, and the short-term interest repayment ability of these industrial assets is very poor. Therefore, the use of capital leverage in the next restructuring of Ziguang Group has been restricted. Although the current domestic investment in semiconductors is very hot and there are sufficient funds, it cannot be used. High leverage is also a difficulty for the restructuring of Ziguang Group in terms of funds; in addition, after the merger, it has not been effectively integrated and insufficient due to due diligence. Now the reorganization agency cannot perform more adequate due diligence in a short time. There are potential debt risks in it. How much is also a difficult point that makes the restructuring organization headache. Without certain due diligence experience and risk control measures, I am afraid that it will become the 2.0/3.0 version of Ziguang Group, and it may fall into multiple bottomless pits!

From a business perspective, Ziguang Group Yangtze River Storage, Ziguang Zhanrui, Ziguang Guowei (including Ziguang Tongchuang) and Linxens, are fully covering the entire semiconductor industry chain from design, manufacturing to application, but due to Most of them were acquired through acquisitions, and there was no integration and coordination after the acquisition. Yangtze River Storage is a huge national investment and does not have market-oriented operations. Not only has the synergy of the entire industry chain failed to play, but each business has become a hot potato.

Several core business problems of Ziguang Group are mainly manifested in: 1. Yangtze River Storage’s subsequent huge investment and operation 2. Lilianxin’s low technology and high market share chip bonder business encounters development bottlenecks 3. Ziguang Tongchuang FPGA huge losses 4. Memory chips, mobile phone chips, security chips, each fighting alone and unable to cooperate. 5. Xinjiang Gas Group, Chengtai Property Insurance and Happy Life Insurance, Yunnan Qujingqu Bank equity, and “one-on-one” educational counseling, Xueda Education, etc. It is not related to the semiconductor industry and cannot coordinate business processing in the future. Let’s analyze them separately:

Yangtze River Storage, which has invested tens of billions of dollars, is still in the early stages of mass production. If it wants to compete with Samsung, Kioxia, Hynix, Micron, etc., huge investment is required to increase production capacity and develop next-generation products. Its production expansion plan was forced to postpone due to the debt problem of Ziguang Group. On July 12th, US Senator Bill Hagerty and Congressman Michael McCaul also jointly wrote to US Secretary of Commerce Gina Raimondo, hoping that the US Department of Commerce would include Yangtze River Storage. List of American entities to limit their development. More than 80% of Yangtze River Storage’s equipment comes from the United States and Japan, and many of them are currently difficult to replace.

As the only company in China that mass-produces 3D flash memory, YMTC achieved mass production of 32-layer 3D NAND in early 2019, pioneered Xtacking technology, and successfully developed 64-layer 3D NAND, and mass-produced 32GB TLC in September 2019 3D NAND. Shipment of 64-layer flash memory particles exceeds 300 million, 128-layer QLC is ready for mass production, and the TLC yield is quite high. In April 2020, YMTC announced the launch of a 128-layer stack of 3D flash memory, claiming that the 128-layer QLC 3D flash memory (X2-6070) is the industry’s first 128-layer QLC 3D NAND, and has the highest storage density per unit area among known models. , The highest I/O transfer speed and the highest single NAND flash memory chip capacity. According to Tech Insights’ disassembly of the 128-layer 512Gb TLC flash memory of YMTC, it was confirmed that its storage density reached 8.48GB/mm2, surpassing Samsung’s 6.91GB/mm2, Micron’s 7.76GB/mm2, and SK Hynix’s 8.13GB /mm2. According to the plan, 128-layer flash memory should be mass-produced last year, but due to objective conditions such as the epidemic, mass production will finally start this year. Compared with the international level, Samsung and SK Hynix started mass production of 128-layer TLC flash memory in 2019. At present, Samsung, SK Hynix, Western Digital, Micron and other companies have mass-produced 176-192-layer flash memory, which is in line with the international level. In comparison, domestic storage still has a certain gap in the number of stacked layers. Regardless of the technological advancement, process maturity, product stability, manufacturing cost, market acceptance, etc., it should be market-oriented, in line with international standards, and advanced to the international level. In line with, not just in the domestic or group market, an international semiconductor professional operation and management team is required. It must have patience to accompany the long-term development of the company, but also have the ability to improve operations, market-oriented and internationalized financing. Capital operation takes off with both wings, not only to be independent, not to be stuck by foreign technology, but also to participate in international competition, forming an internationally competitive storage industry leader that can be integrated into the international semiconductor industry chain, facing Samsung, Hynix, Micron, etc. Competition among giants.

In the process of merging Spreadtrum and RDA, Ziguang Zhanrui resulted in the loss of the RDA team (later developed into Aojie Technology Co., Ltd., preparing to land on the Sci-tech Innovation Board), and Zhanrui failed to cooperate with Intel to develop mobile phone chips (Intel not only failed to enter In the mobile phone market, even the mobile phone baseband business was sold to Apple in 2019). Zhan Rui later introduced a large fund to prepare for listing. However, due to changes in the restructuring of the controlling rights of Ziguang Group, it was unable to start the listing. At the same time, due to the previous turbulent history to Zhan Rui’s team It brings hidden worries to the reorganized company’s operations and the future of the team itself, and hinders further business development.

Tsinghua Unigroup has made breakthroughs in FPGA technology products and has potential domestic substitution opportunities relative to Intel and Xilinx. However, it also faces the same problems as Zhan Rui. It also has the same problem of follow-up development funds as Yangtze River Storage.

In 2018, Ziguang Group acquired French chip connector manufacturer Linxens for 2.266 billion euros (approximately 17.4 billion yuan). The assets of Lilianxin are mediocre, with revenue of 3.315 billion yuan in 2019 and net profit of 498 million. Yuan, both indicators have fallen into a bottleneck. Lilianxin’s chip micro-connectors have functions similar to adhesive tape and can bond chips to other modules. Although they monopolize the global market and are an upstream manufacturer of Unigroup, their technical content is not high. According to the asset appraisal report, as of June 30, 2019, the market value of Unisplendour Unison was 18.468 billion yuan, of which 14.3 billion was goodwill. For this reason, the listed company Ziguang Guowei intends to acquire Lilianxin’s assets at 18.4 billion yuan. The inclusion of listed companies was rejected by the Securities Regulatory Commission on the grounds that the amount of goodwill of the underlying assets was relatively large, and the applicant failed to fully state that the transaction was beneficial to improving the asset quality of the listed company.

Since the core business of Ziguang Group involves the entire semiconductor industry chain from design, manufacturing to application, it needs to be reorganized to have the ability to operate the entire semiconductor industry chain. The semiconductor industry itself is a long-cycle industry, and there are some requirements for the operation of each link in the industry chain. The investment of craftsmanship is a hard and tiring job. If you are a top student in the semiconductor industry, you can also do dirty and tiring tasks, and be able to bear hardships and stand hard work.

It can be seen that in the final selection of the Zhilu Jianguang Consortium, in addition to the purpose of solving the debt crisis from the perspective of creditors, it is more from the perspective of integrating and optimizing the semiconductor business of Ziguang Group and improving operating performance. The entire restructuring plan needs to be considered from multiple dimensions such as creditor asset security, national strategic investment, market-oriented operations, technological innovation, and semiconductor industry operations, which is quite difficult.

From the perspective of resolving creditors’ funding problems, Zhilu Jianguang has experience in large-scale overseas mergers and acquisitions and sufficient capital preparation and fundraising channels, which can solve funding problems; in addition, Zhilu Jianguang has due diligence on tens of billions of assets. Rich experience, able and daring to quickly and effectively identify asset risks, and quickly reach an agreement with various stakeholders on the restructuring plan. At the same time, rich experience in mergers and acquisitions is also conducive to the formation of an integrated plan with execution ability.

When we marveled at the success of Zhilu Jianguang’s series of large-scale overseas mergers and acquisitions, we marveled at its global resource allocation and post-investment integration capabilities and admired its “12-character book of stable team, management process, ammunition replenishment, and potential post-investment management”. It is not difficult to think about these theories. Most investment institutions also have their own methodology in post-investment management. Why is Zhilu Jianguang the most successful? If we study it, we will find that Zhilu Jianguang’s 12-character post-investment book was summed up by the outside world for Zhilu Jianguang. In fact, Zhilu Jianguang did not consider itself as an investment institution to “manage” when it invested in the establishment of Ruineng Semiconductor. “Enterprises, instead, regard themselves as the entrepreneurs of the merged company, and an industrial operator to build each enterprise and form a semiconductor industry group with the entire industry chain.

Our research found that Zhilu Jianguang does have very obvious characteristics of the semiconductor industry in all aspects, and its industrial attributes are very obvious:

1. The majority of core team members are from industry operators, except for top investment banking experts integrating industry and finance, KKR Greater China general manager and McKinsey global partners such as top international management experts and international bankers. , More of them are executives of well-known companies in the semiconductor industry chain from entrepreneurship to listing, and executives of international giants such as Micron, Intel, Xilinx, Infineon, Bosch, etc. (from technology, R&D all the way to factory management executives), the founders of China’s top three semiconductor design service companies, have experienced the company’s process from entrepreneurship to listing, and also have “863” and other major specialist scientists who have started their businesses in China’s semiconductor technology in this field. From scratch, from the low-end to the high-end, and finally merged into the listed company as a whole, the market value of the listed company exceeds 200 billion yuan, and has a wealth of scientific research and industrialization experience. There are also The executives of international and domestic first-class semiconductor equipment companies have years of engineering and technical experience ranging from semiconductor industry to equipment, familiar with semiconductor processes and equipment, as well as factory management experts of the first domestic semiconductor manufacturing plant. More than 80% of Zhilu Jianguang’s senior management team have such industry experts. The arrangement of Zhilu Jianguang may be based on the need for a stronger industrial and technical background for semiconductor investment, and it may also have management and management of these semiconductor industry chains. Enterprises and the needs of future group development and industrialization development are laid out in advance.

As for the acquired company, Zhilu Jianguang usually retains the original core team, but first reincentivizes the management team with an extremely ambitious equity incentive plan to deeply bind the interests of investors and the management team, and encourage The senior management team started a business for the second time, and at the same time organized top international semiconductor talents to be added to the team, so as to focus on me and combine Chinese and Western.

The team must be industrial and the best.

2. The industrial layout of Zhilu Jianguang is also very characteristic of the semiconductor industry. The enterprise group invested and managed by Zhilu Jianguang has 10 factories and R&D centers distributed in many countries around the world, including 4 wafer factories, 4 packaging and testing plants, 1 advanced equipment R&D center, and 1 advanced materials R&D center have concentrated the R&D strength of advanced materials such as gallium arsenide GaAs, gallium nitride GaN, silicon carbide SiC and so on. The related enterprise group has more than 30,000 employees, including more than 5,000 R&D personnel, with annual sales of tens of billions and billions of profits, forming a whole industry from upstream equipment and materials to R&D, design, manufacturing, and packaging and testing. Chain layout.

3. It is understood that Zhilu Jianguang has set up a virtual board of directors and group management team with the general manager of KKR Greater China and McKinsey global partners as the core, and the division of labor is based on industry sectors and industry chains. Make an in-depth review of the business process of the acquired company. Take a manufacturing company as an example. After the company is acquired, the international industry experts of the Rongxin Industry Alliance and the management team will conduct a survey of each factory in the company, examine the production capacity, yield, and management advantages and disadvantages. First, the requirements of the internal Model factory As a requirement of the whole enterprise. After the improvement and promotion, the practice of benchmarking the best companies in the industry was followed. In this way, with the cooperation of the management team and the industry experts of the investment company, the level of production management was continuously improved.

Many assets invested and acquired have entered a mature development period, and it is often difficult to obtain capital investment to support healthy development. Without sufficient capital investment, there is insufficient “ammunition” in R&D and production, and only low growth can be maintained, or even decline. One of the biggest turning points for these companies is that they are not short of money. The investment agency of the Rongxin Industry Alliance will make a post-investment business plan and business expansion strategy based on the company’s market position in the industry, and give the invested company sufficient financial support and resources. Matching, enough ammunition lays a solid foundation for breaking through the past low-growth dilemma, blood transfusion and intelligence.

In terms of performance goals, industrial development and coordination account for a large proportion.

4. Compared with other investment institutions, even industrial groups, the Rongxin Industry Alliance has invested heavily in engineering, technology, and R&D. Chip design, wafer manufacturing, packaging and testing, etc. involve electromagnetics, heat, mechanics, Many disciplines such as physics have high requirements for product reliability, consistency, safety, stability and long-term effectiveness. The overall R&D cycle is long. Enterprises need a long time of technology accumulation and experience precipitation to achieve technological breakthroughs. , The rate of localization of high-end chips like automotive-grade chips is relatively low. With the continuous improvement of the degree of electrification, intelligence, and networking of automobiles, it is urgent for enterprises to establish a new ecology and new pattern of the semiconductor industry by means of technological innovation. It is said that from the selection of investment targets, to post-investment management and subsequent industrial layout, Zhilu Jianguang not only uses financial indicators as judgment indicators, but also takes the company’s R&D and engineering capabilities as an important consideration. There are scientists in the team. The invested enterprises have also actively cooperated with universities and local governments to establish R&D centers, which can form higher technical barriers in professional subdivisions.

It is precisely based on the above solid industrial and technological foundation that, in the past few years, the companies invested by Zhilu Jianguang have covered the entire industrial chain ecology of integrated circuits from materials to chip design, manufacturing, packaging and testing, and application. The Greater Bay Area has established a number of industrial bases, with R&D centers and business centers in many places around the world. Through strong global resource allocation capabilities and post-investment integration and operation efficiency, it is actually a veritable semiconductor industry group.

In the past few years, through the two-wheel drive of holding-type acquisitions and industrial operations, the Zhilu Jianguang Consortium has taken capital as the entry point, focused on the semiconductor industry chain, and formed a semiconductor industry group with unique advantages (the author will temporarily call it Rong Xin Semiconductor Industry Group):

Compared with the international semiconductor giants, the Rongxin Semiconductor Semiconductor Industry Group of the Zhilu Jianguang Consortium understands China better, is more adaptable to China’s semiconductor industry environment, and can promote the innovation and development of China’s semiconductor industry;

Compared with the domestic semiconductor industry leader confined to a certain field or a certain node in the industry chain, Rongxin Semiconductor Industry Group has a more comprehensive industry chain, greater growth space, and lower dependence on foreign countries; a more comprehensive industry Chain management capabilities can make up for what is lacking. It is conducive to reorganization and optimization of the semiconductor business of Ziguang Group, which is very uncertain.

Compared with domestic investment institutions, including semiconductor industry institutions, Rongxin Semiconductor Industry Group may be less like investment institutions and pay more attention to industrial operations. Unlike other investment institutions that take exit as the first goal, it seems that the semiconductor industry is “getting more and more troubled.” “Deep” and heavy vertical operation does not seem to be a good investment institution for capital that focuses on short-term capital returns, but it is a trustworthy investment institution for the semiconductor industry that needs long-term accompany. As far as the source of national strategic projects is concerned, it is an institution worthy of entrusting it to get rid of financial dependence and move towards market-oriented operation.

It may also be based on this that the creditors and management institutions of the Ziguang Group’s reorganization finally chose the Zhilu Jianguang Consortium.

Zhilu Jianguang’s restructuring of Ziguang Group is not a bailout, and is more different from debt restructuring in the general sense. It is essentially a merger of China’s two major semiconductor industry groups.

In terms of M&A and investment in the semiconductor industry, Tsinghua Unigroup has used capital operations for the purpose and excessive leverage has caused the company to be on the verge of bankruptcy. However, it has laid a certain foundation in some key technical and hardware fields and has made contributions to the industry. Poor management and corporate bankruptcy are serious failures in semiconductor investment and industrial operation. However, the main products of companies such as Ziguang Zhanrui, Ziguang Guowei, Yangtze River Storage, Ziguang Co., Ltd., and Xinhua San include mobile communication chips, Internet of Things chips, storage Chips, smart security chips, computer and network infrastructure and solutions, cloud computing and big data applications, etc., play a very important role in ensuring national information security, establishing independent and controllable information technology infrastructure and standards, and realizing domestic substitution. Therefore, the author believes that although Ziguang Group has failed, it should also be given a score of 40 to 50; and under the current international situation and the current status of the domestic semiconductor industry, most of the investment and mergers and acquisitions of the Zhilu Jianguang Consortium are relatively successful, and the semiconductor industry layout is also It is beginning to take shape, and it should be good to excellent. It can be given a score of 70-80, but there is still a certain gap between the two semiconductor industry groups. I hope that after the merger of the two semiconductor industry groups, after 10 years of development, they can get a score of 90 or more. Score, and can drive the development of China’s semiconductor industry by leaps and bounds.

But can Ziguang Group get out of the predicament, and can Ziguang come to the east after the reorganization of Ziguang Group? Moreover, “Ziqi Donglai” is not the Ziguang Donglai of Ziguang Group, nor the Ziqi Donglai after Zhilu Jianguang merged with Ziguang Group. It will bring the Ziguang Donglai of China’s semiconductor industry.

Can the development of China’s semiconductor industry take this opportunity to open a new chapter? Worthy of attention.

The Links:   LM150X05-B2   BSM400GB60DN2