KUALA LUMPUR: SilTerra Malaysia Sdn Bhd should remain in the local hands to make Malaysia still relevant in the intricate and lucrative wafer fabrication business, industry observers said.
Due to the exorbitant cost of at least US$1 billion to set up a wafer foundry, they said Malaysia might not have any more opportunity to set up a similar plant which, if properly run, can benefit the nation.
They said listed firms Dagang NeXchange Bhd (DNeX) and Green Packet Bhd had put in solid bids to buy SilTerra from its parent Khazanah Nasional Bhd.
It was reported that Khazanah had allowed two global players, Foxconn of Taiwan and Germany-based X-FAB, to participate in the bid to get a better value for SilTerra.
Green Packet, in a 55:45 consortium with Dongfang Huijia Zhuhai Asset Management Co Ltd, has put in a bid comprising RM235 million cash payment and RM210 million debt absorption.
The proposal from DNeX and its strategic partner Beijing CGP Investment Co Ltd (Beijing CGP) was "very comprehensive", according to people familiar with the matter.
It was focused on planning and executing SilTerra's turnaround with a total investment of RM846 million, they said.
On top of a RM136 million cash payment for Khazanah, DNex and its partner will absorb SilTerra's RM210 million bank borrowings, and inject a total of RM500 million for its capital and operating expenditures.
When contacted, Khazanah managing director Datuk Shahril Ridza Ridzuan said he could not comment because the government investment arm was bound by non-disclosure agreements.
Industry observers said Foxconn could be the preferred bidder for Khazanah due to its cash payment of about US$150 million.
Foxconn is today one of the world's largest provider of electronics manufacturing services to manufacture electronic products for major Chinese, American, Canadian, Finnish and Japanese companies.
But Foxconn was mainly a contract manufacturer, they said, adding that it did not own and had no experience in running foundry such as SilTerra.
Foxconn was likely to transfer SilTerra to another company to operate the foundry, they added.
"With the sale of SilTerra to a foreigner party, Malaysia is effectively exiting from the high-tech semiconductor industry, which other countries are fighting to enter into as the world becomes more digitised and sees the emergence of Internet of Things, among others," an industry observer said.
While Malaysia through Khazanah was exiting the wafer fabrication industry, the observer noted that China had pledged an estimated US$1.4 trillion through to 2025 to develop its semiconductor industry which Malaysia can take advantage of the opportunities from the US-China trade conflict as a preferred destination for investments.
The industry observers said the Green Packet and DNeX consortiums were not only partnering with fund companies, but they bring with them their investee companies that are players in the industry value chain.
They said Green Packet's partner Dongfang Huijia was 100 per cent-owned by China Orient Asset Management Co Ltd.
China Orient is a state-owned central financial enterprise jointly established by the Ministry of Finance, the National Council for Social Security Fund with total assets exceeding US$150 billion, and Shenzen Huaqiang Holdings Ltd, which owns the largest distributor of semiconductor components in China.
The partner for DNeX, meanwhile, is not only a fund manager but the proxy of China's integrated circuit (IC) industry.
Further checking shows that Beijing CGP is a RM15 billion fund headquartered in Beijing.
It specialises in IC development with limited partners (LPs) comprising China Integrated Circuit Industry Investment Fund Co Ltd and eTown Capital with combined funds of 200 billion renminbi.
The investee companies of Beijing CGP and its LPs are involved in the whole value chain of the semiconductor industry from product design (which includes ChipOne, Amicro, mCube, Yangtze Memory Technologies and GigaDevice) and design services to foundry fabrication and assembly and testing.
The industry observers said the DNeX consortium was bringing in these investee companies to Malaysia to support the development of Malaysian-owned semiconductor eco-system.
With the Innovation Fund to be set up by DNeX, it would help locals to design and manufacture local products for the international market including China, they added.