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How Alibaba-led group can save China's leading chipmaker with an $8 billion takeover

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China’s chip champion, Tsinghua Unigroup, is reeling under a massive debt of $16.9 billion. 

How Alibaba-led group can save China's leading chipmaker with an $8 billion takeover
After Chinese real estate giant Evergrande’s debt crisis shook the country's stock market, another big corporate is heading in the same direction.
China’s chip champion Tsinghua Unigroup is reeling under a massive debt of $16.9 billion. The once high-flying conglomerate has been struggling to pay debts for about a year now. In November last year, the group defaulted on a $199 million debt. Subsequently, in December, the company defaulted on bond repayments totalling more than $3 billion.
While Tsinghua University, Chinese President Xi Jinping's alma mater, owns 51 percent stake, 49 percent is with the Tsinghua Unigroup’s Chairman Zhao Weiguo. For about a decade now, Tsinghua Unigroup has been bingeing on credits and using them for acquisition and buying up foreign firms. In 2015, the company even made a $23 billion bid to buy memory-chip giant Micron. The deal couldn't materialise because of US concerns about technology transfer to China.
However, the company entered a bankruptcy restructuring process after a Beijing court ordered in favour of an investor, who sued the company over a bond payment default. Besides, the conglomerate is struggling to bring in strategic investors who have deep pockets and the capability to run its chipmaking and cloud business.
Concerned over the probable insolvency of the company, the Chinese government has pinned its hopes on an Alibaba-led consortium to take over the debt-ridden chipmaker and avert a financial crisis, according to a Bloomberg report. The deal could cost Jack Ma-led Alibaba a massive $7.8 billion (50 billion yuan).
The report adds that Alibaba saving the chipmaker will also help Jack Ma reduce tensions with Beijing. In the last year, Jack Ma-led businesses have faced the wrath of the Chinese Communist Party. The punitive measures against Ma started after he slammed the country’s financial regulator -- State Administration for Market Regulation (SAMR) -- in October 2020.
Speaking at a conference, Ma had said that China's financial system was “the legacy of the Industrial Age” and that Chinese banks are giving loans to companies that do not need money.
In less than a month after Ma's remark, the Chinese officials suspended Ant Group's IPO rollout, which was to be the highest valued public listing ever. Subsequently, SAMR levied a fine of 18 billion yuan ($2.75 billion) on Alibaba for alleged violation of anti-monopoly rules and abuse of its dominant market position.
Meanwhile, Beijing authorities also halted new enrolments at an elite business school — Hupan University — backed by Alibaba founder Jack Ma.
From what it seems now, things have come a full circle with Beijing relying on Jack Ma to save one of the biggest chipmakers in the country. However, no official statement has been issued by Jack Ma so far.
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