Wise up

Unigroup’s former boss Zhao

Back in 2015 every industry insider suspected the most influential ‘investment fund’ in the semiconductor sector was Tsinghua Unigroup. Starting life as a state-owned enterprise under Tsinghua University, alma mater of Chinese President Xi Jinping, Unigroup was supposed to be the leading light in China’s push into the advanced echelons of chipmaking.

Led by Zhao Weiguo, Unigroup gobbled up one chipmaking firm after another, including French smart chip maker Linxens in 2018 for $2.6 billion, while also investing heavily to expand its portfolio firms’ production lines in China. Its total assets ballooned from Rmb6.6 billion in 2012 to nearly Rmb300 billion ($45 billion) in 2020.

During a visit to Taiwan in 2015, a gung-ho Zhao even told reporters he had plans to invest in TSMC. The remarks prompted rebuttals on the self-ruling island, with Foxconn’s Terry Gou dismissing Unigroup’s tech strength and derisively calling Zhao a “stock market speculator”.

“You can’t go to Morris Chang [TSMC’s founder] and ask a godfather of the semiconductor industry how much would he sell his company for,” Gou said. (According to 21CN Business Herald, TSMC was the second most valuable listed Chinese firm last year, behind only Tencent and just ahead of distiller Kweichow Moutai.)

Regular WiC readers should be familiar with what happened next. Unigroup’s acquisition spree saddled the company with debt. Just as its ‘national service’ mandate would seem to have been needed most in the wake of escalating tech and trade rows with the US, it promptly imploded in 2020. The insolvent chipmaker and investor filed for a debt restructuring in the same year.

Then when the restructuring was officially concluded last week – following a change in ownership – observers were shocked by reports that Zhao had been taken from his home by the authorities earlier this month. The 54 year-old may face investigation over problems relating to open tenders by Unigroup and other matters, Caixin magazine reported.

Zhao was born on a sheep farm in Xinjiang. After graduating from Tsinghua’s engineering school, an extremely rare feat for a shepherd boy from Xinjiang in the 1980s, he made his fortune by developing real estate in his home province. His astute investment sense (perhaps more than his training as an engineer) was crucial when Zhao’s alma mater recruited him in 2009 to head Unigroup, then a struggling tech firm without a clear business focus.

Zhao chaired Unigroup for more than a decade and became an influential figure in driving a semiconductor investment boom that ended with spectacular failures including Unigroup’s bankruptcy (see WiC513). No one’s sure what the future holds for the chip mogul although many commentators agree “the curtain has finally fallen on the era of Zhao Weiguo”.

Unigroup announced in a regulatory filing in mid-July that it had completed a restructuring plan that put it under the ownership of a vehicle controlled by Wise Road Capital and a number of state-backed funds.

Interestingly enough, in recent years Wise Road, a private equity firm that’s believed to have been established around 2016, has replaced Unigroup as the most acquisitive investor in the semiconductor industry. According to Bloomberg, it has taken part in eight major deals that were worth $4.5 billion between 2016 and 2021.

Like many private equity firms, Wise Road’s shareholding structure is unclear. In an interview with the South China Morning Post last year, Michael Zhang, the fund’s founding partner, said the firm followed “market logic” not state orders in screening deals, and pursues profits for its investors, which include financial institutions, multinational companies and family offices.

The reorganisation process itself has, at times, been hard to follow. In a widely discussed public comment, Zhao complained last July that tens of billions of yuan in state-owned assets were siphoned away from Unigroup’s debt restructuring plan.

Given how things have turned out, it is fair to say that Wise Road appears to have garnered much stronger backing from the Chinese government. Foxconn’s Gou is a supporter too. Foxconn said in a filing last week that the group’s Shanghai-listed unit Foxconn Industrial Internet, is one of the new shareholders in the entity that now controls Unigroup with Wise Road.

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