Cyberjaya, 31 March 2021 – Dagang NeXchange Berhad (“DNeX”) and Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Center (Limited Partnership) (“CGP Fund”) have signed a share sale and purchase agreement (“SSPA”) with Khazanah Nasional Berhad (“Khazanah”) to acquire 100 per cent stake in Khazanah’s semiconductor unit, SilTerra Malaysia Sdn Bhd (“SilTerra”), for RM273.0 million which will be satisfied entirely with cash.
Based on the SSPA, DNeX will acquire a 60 per cent equity interest in SilTerra while CGP Fund will acquire the balance 40 per cent equity interest. The purchase consideration for DNeX’s 60 per cent 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, internally generated funds and/or borrowings.
DNeX and CGP Fund have also committed to a capital injection of at least RM200.0 million by way of subscribing for new ordinary shares to be allotted and issued by SilTerra. From the capital injection, approximately RM150.0 million will be mainly utilised as capital expenditure to upgrade SilTerra’s equipment and manufacturing capabilities in new technologies with the remaining allocated for working capital. Based on DNeX’s 60 per cent equity stake, the capital injection by DNeX shall amount to approximately RM120.0 million.
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.
CGP Fund was established as a private equity fund in 2014 focusing on the semiconductor industry in China. Meanwhile, Beijing CGP Investment Co Ltd (“CGP”), a private and independent investment management company, is the general partner and manager of CGP Fund which is principally operating based on market-oriented principles. The management team has substantial collective years of experience and a wide and diverse range of international network resources in the capital market and in the semiconductor and other high technology industries.
“We would like to thank Khazanah for believing in us to turnaround SilTerra. This is a testament to our strength and capabilities as a turnaround specialist that will be able to create value on inherent competencies and resources of SilTerra. We believe SilTerra can ride on the current shortage in the global semiconductor market and turn a better financial performance in the coming years,” said Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir, Group Managing Director of DNeX.
He said DNeX has set a two-year time frame to turn around SilTerra and bring the company back to profitability. He said key success factor for SilTerra’s turnaround plan lies in significantly increasing factory utilisation and gradually changing of product mix to higher profitability products. DNeX plans to integrate the collaboration to provide access to new market, transfer of new technology, and optimize existing operations and management of resources to adapt to the new businesses, with its partner CGP. The partnership will also act as a bridge bringing in an established ecosystem of international technology players to nurture Malaysian, local content to serve the global market.
“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.
Moreover, adding SilTerra into DNeX’s portfolio can help reduce the Group’s dependency on trade facilitation business, and at the same time provide exposure for DNeX to ride on the resilient and growing global semiconductor market. The Group 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 a post-Covid 19 environment.
Upon completion of the proposed acquisition, contribution from SilTerra is expected to account for 25 per cent or more of the Group’s consolidated net profits and consolidated net assets moving forward. Hence, the Group announced the proposed diversification of its principal activities to include the manufacture, sale and marketing of semiconductor wafers, semiconductor-related tools and other related activities.
Mr Cadol Cheung, Managing Partner of CGP said, “At CGP, we have the experience in acquiring strategic assets, putting in the necessary resources, and successfully turning businesses around. We bring in deep industry knowhow from manufacturing to the entire value-chain, business contacts given the many years in operations and investing in the industry, and customers to our portfolio companies.”
“With regards to turnaround experience related to SilTerra, we were involved in the acquisition of Silex Microsystems (“Silex”), a pure-play MEMS (“Micro-electro Mechanical Systems “) foundry based in Sweden, in 2015. After the acquisition, CGP succeeded in completing all business goals set forth at time of acquisition, and today, Silex has grown to be the most advanced and largest pure play foundry by revenue for MEMS devices in the world according to well-known market research firm, Yole Development’s June 2020 report. Given the
experience and its China presence, CGP is confident that we can repeat the success story to Silterra.”
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. Located in Kulim Hi-Tech Park, Kedah, SilTerra manufactures semiconductor wafers which are supplied to multinational fabless and integrated device manufacturer companies.
SilTerra’s wafer technologies are used in developing products such as smart home appliances, wireless chargers, electric vehicle charging power stations, and medical technologies, amongst others. Demand for these products are expected to continually grow, driven by adoption of Internet of Things (“IoT”) and fifth-generation wireless (“5G”) network. Its products are widely used across different segment such as consumer electronics, optical data communications, life sciences, automotive and industrial applications.
According to Semiconductor Industry Association, the global semiconductor market has shown resilience to headwinds caused by the Covid-19 pandemic and other macroeconomic factors. Global sales of semiconductors are expected to further grow by 8.4 per cent in 2021, from an increase of 5.1 percent in 2020.
On the same day, DNeX also announced a proposed private placement of up to 30 per cent of the total number of issued shares to part or fully finance the Group’s proposed acquisitions of SilTerra, and other business expansion or investments and working capital if required.
From left to right Datuk Shahril Ridza Ridzuan, Managing Director of Khazanah and Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir, Group Managing Director of DNeX signing official documents.