China’s Hefei province reaps vast windfall from CXMT’s IPO

{"text":[[{"start":8.68,"text":"A blockbuster IPO by CXMT has delivered a windfall for its home province, which is now sitting on paper gains of 5,000 per cent after its early investment in China’s latest chip champion."}],[{"start":21.12,"text":"The surge in CXMT stock has benefited the administration of Hefei, a city in China’s eastern industrial hinterland, which has invested in industries ranging from EVs to semiconductors and AI over the past decade."}],[{"start":34.6,"text":"The bet by Hefei, the capital of Anhui province, on the chipmaker has proved to be one of its most lucrative and is a validation of an economic strategy that involves local administrations acting like venture capital funds."}],[{"start":46.8,"text":"Government funds play a “crucial role as anchor investors and catalysts in this ecosystem”, said Shihao Li, a strategist at Citic CLSA."}],[{"start":56.56,"text":"CXMT’s top two shareholders are funds affiliated with the Hefei municipal government which own a 30 per cent stake now worth close to Rmb1tn ($148bn)."}],[{"start":66.96,"text":"“Hefei at the municipal level and Anhui province have been quite remarkable in terms of their experimentation using local state-owned capital to nurture innovation in strategic industries and play a VC role,” said Chen Li, associate director at the Centre for China Studies at the Chinese University of Hong Kong."}],[{"start":84.92,"text":"The next largest shareholder is China’s “Big Fund”, a government vehicle for semiconductor investment, which owns a 7.9 per cent stake."}],[{"start":93.52,"text":"CXMT is the latest flagship investment associated with Hefei’s activist industrial-capital approach, championed by Beijing and aimed at nurturing domestic technological innovation. The city has previously backed display manufacturer BOE’s local expansion and EV maker Nio’s 2020 rescue via different municipal investment vehicles."}],[{"start":114.2,"text":"“A number of local governments in China are trying to learn from Anhui and Hefei but it’s not easy to get this right,” said CUHK’s Li. “This model is part of China’s exploration of the coping strategies of how to achieve frontier innovation and tech catch-up in this context of geopolitical competition.”"}],[{"start":130.92,"text":"Based on the values from CXMT’s March 2023 investment round, Qinghui Power and Changxin Integrated put in Rmb13bn ($1.9bn) and Rmb6.7bn ($990mn), respectively, at Rmb1 a share. Based on Monday’s closing price, those investments have risen to Rmb639bn ($94bn) and Rmb345bn ($51bn) respectively — gains of about 50 times in the space of just three years. Neither fund cashed out on its investment in the IPO."}],[{"start":168.3,"text":"CXMT was founded by Zhu Yiming, who also started GigaDevice, a fabless semiconductor company whose shares have also exploded in recent years."}],[{"start":null,"text":"

"}],[{"start":177.68,"text":"Zhu studied physics at Tsinghua University, China’s top school for Stem subjects and a powerhouse for churning out government officials who occupy some of the highest echelons of the Communist Party. He is worth almost $14bn, according to Bloomberg, after the IPO pushed up his net worth by about $9bn, making him one of China’s wealthiest people. In May Zhu pledged a portion of his shares to employees."}],[{"start":202.8,"text":"The other big winner has been China’s banks, particularly CICC, which has emerged as the go-to sponsor for megadeals involving Chinese firms in mainland China and Hong Kong, topping equity IPO league tables for both markets this year."}],[{"start":216.76,"text":"CICC and China Securities were joint lead sponsors on the IPO. According to the prospectus, the total underwriting and sponsorship fees for the blockbuster IPO before the exercise of an overallotment option were Rmb226.6mn ($33.5mn), representing a commission of just 0.39 per cent."}],[{"start":237.32,"text":"Other banks were investors in rounds before the listing and have seen substantial paper gains."}],[{"start":242.8,"text":"Based on Monday’s closing price, the gains for major lenders including Agricultural Bank of China, Bank of China and China Merchants Bank, were about 16 times, according to FT calculations. For some, such as China Construction Bank, the gains stand to represent a significant portion of their annual revenue."}],[{"start":260.92,"text":"Meanwhile, hedge funds controlled by DeepSeek billionaire founder Liang Wenfeng were allotted large tranches of shares for institutional investors at Rmb8.66 a share, locking in substantial gains for his funds after the first day of trading."}],[{"start":275.18,"text":"More broadly, analysts see the funding model behind CXMT as part of a shift away from bank-led lending for businesses in China."}],[{"start":283.16,"text":"“We view direct equity financing as increasingly replacing traditional bank lending as the primary mechanism for funding emerging strategic industries in China,” said Li of Citic CLSA."}],[{"start":296,"text":"“This model basically represents the fact that for China to really compete in this kind of capital-intensive, long investment cycle, highly uncertain tech industry you need very patient capital that is risk tolerant,” said CUHK’s Li. “This type of capital needs to be in the form of equity — banks are not going to be sufficient to play this role.”"}],[{"start":316.24,"text":"Additional reporting by Eleanor Olcott in Beijing"}],[{"start":324.36,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785225794_8822.mp3"}