LDN - Business

China Everbright, VC firm Walden launch $500 million semiconductor fund

[October 26, 2017] By Julie Zhu

HONG KONG (Reuters) - China Everbright Limited (CEL) and U.S.-based venture capital firm Walden International are launching a $500 million fund to invest in semiconductor and industrial information technology, amid Beijing's drive to be a leader in the sector.

The Walden CEL Global Fund I will focus on semiconductor and electronic information firms globally, including those in microchip and artificial intelligence, at the growth and maturity stages, the companies said in a statement on Thursday.

They plan to import the high-end technology of the fund's future portfolio companies into the Chinese market to boost the country's semiconductor industry.

China last year accounted for about 44 percent of the global semiconductor industry's total revenue of $339 billion, according to the Semiconductor Industry Association.

The launch of the fund comes against the backdrop of China's lofty ambitions in the sector. Beijing in 2014 laid out "National Integrated Circuit Industry Development Guidelines" which set aims to dominate major segments of the semiconductor industry by 2030.

Since then, Chinese outbound semiconductor deals have totaled on average $5.4 billion per year, almost 30 times the annual average for the prior three years, according to Thomson Reuters data, becoming a major driver in the country's development goals.

But a record $4.9 billion in outbound semiconductor investments by Chinese firms was withdrawn last year, up from barely $418 million one year earlier, Thomson Reuters data shows, mainly because U.S. regulators adopted a tougher stance on foreign investment in the sector.

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In September, U.S. President Donald Trump blocked Chinese-backed private equity firm Canyon Bridge Capital Partners from buying U.S.-based chipmaker Lattice Semiconductor Corp. His predecessor Barack Obama late last year also took the rare step of blocking another Chinese chip fund from acquiring the U.S. business of German semiconductor equipment maker Aixtron on national security grounds.

Despite the added regulatory hurdles for chip deals, industry analysts and bankers say a lack of global funding in the semiconductor sector will still make China's ample investment capital attractive to cash-strapped firms.

The Walden CEL Global Fund I is the first semiconductor-focused fund for CEL, which is the Hong Kong-based investment arm of state-owned China Everbright Group and manages a total of 36 funds in both yuan and U.S. dollars.

CEL, which raised $6 billion last year and has already invested in technology overseas, is looking to leverage Walden's experience in the semiconductor space to scour investment and acquisition targets worldwide.

Founded in 1987, Walden, which now has about $2.6 billion in investments, has invested in several high-tech firms including SMIC, one of the world's largest contract chipmakers, and Chinese drone maker DJI Technology.

(Reporting by Julie Zhu; Editing by Himani Sarkar and Mark Potter

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