Author: Chen Lina

Author Chen Lina

Editing Chen Jiaxin

since the meeting was suspended on October 18, can core semiconductor (Shanghai) co., ltd. (hereinafter referred to as "can core shares") has not yet waited for news of the meeting again, and the statement that the company has no actual controller is more intriguing.

according to the prospectus, can core shares is an integrated circuit design service enterprise that provides one-stop chip customization service. it plans to be listed on the sci-tech board. its second largest shareholder is SMIC holding, a wholly-owned subsidiary of chip leader SMIC international (688981.SH). its chairman is nominated by SMIC holding. most of the raw materials are purchased from SMIC, but the company claims that it has no real controller.

After two rounds of inquiries and one round of opinion implementation letter inquiries, at the review meeting, the issue of whether the basis of the actual controller of Canxin shares is sufficient, the fairness of the pricing of related transactions with shareholders SMIC, and its own independence continue to be of concern to the Shanghai Municipal Committee.

Who owns the core?

according to the shareholding structure disclosed in the latest prospectus, as of October 11, 2023, Zhuang zhiqing, the largest shareholder of can core shares, and his concerted parties hold a total of 19.82 percent of the company's shares, the second largest shareholder is SMIC's wholly-owned subsidiary SMIC international holding co., ltd. (hereinafter referred to as "SMIC holding"), holding 18.89 percent, and the third largest shareholder is NORWEST VENTURE PARTNERS X,LP (hereinafter referred to 13.47 percent, canxin shares have no controlling shareholder and controller.

In addition, the inquiry letter shows that Canxin shares have no real controller and controlling shareholder for many years.

1.1 SMIC Holdings' long-term shareholding ratio exceeds 30% and is not recognized as a controlling shareholder

The relationship between Canxin and SMIC dates back to 2008. In January 2008, Canxin Semiconductor (Shanghai) Co., Ltd. (hereinafter referred to as "Canxin Co., Ltd."), the predecessor of Canxin shares, was established in the Cayman Islands. In the same year, SMIC also established a wholly-owned subsidiary in the Cayman Islands and passed The subsidiary holds Canxin Co., Ltd. shares.

SMIC had an indirect shareholding of more than 40 per cent, and SMIC's 2010 annual report showed that it indirectly held 44.2 per cent of Canxin Limited through its subsidiaries.

can core limited prospectus shows that after the dismantling of the overseas structure in January 2017, SMIC holds 46.6 per cent of the shares of can core limited through its wholly-owned subsidiary SMIC Holdings.

Subsequently, SMIC Holdings' stake in Canxin Limited decreased rapidly, but the process was not disclosed in the prospectus.

On January 5, 2021, the board of directors of Canxin Limited held a meeting and made a resolution, agreeing to the overall change of Canxin Limited to a company limited by shares. On July 20, 2021, after the completion of this overall change, the largest shareholder of Canxin shares will remain SMIC Holdings, with a 23.48 percent stake.

in September 2022, that is, on the eve of the listing of canxin shares on the sci-tech board, SMIC holdings reduced its shareholding ratio to 18.98 through equity transfer, becoming the second largest shareholder of canxin shares. Shareholder Zhuang Zhiqing became the largest shareholder of canxin shares by signing a "concerted action agreement" with nine other shareholders.

what is puzzling is that during the period when SMIC held more than 30% of the shares for a long time and was the largest shareholder of can core shares, can core shares did not recognize SMIC as the controlling shareholder, and the Shanghai stock exchange also raised relevant questions in the inquiry letter.

in the reply announcement to the inquiry letter, can core shares explained that during the period from the beginning of the reporting period to the period when SMIC holds more than 30% of the shares (I .e. from January 2020 to November 2020), the highest authority of can core limited was the board of directors. SMIC holding could not control the board of directors of can core limited and did not identify SMIC holding as the controlling shareholder in accordance with relevant regulations. In addition, for the same period above, the Board of Directors of Canxin Limited consisted of 6/7 directors respectively, and the number of directors appointed by SMIC Holdings was always 2, none of the directors appointed by SMIC Holdings were sufficient to have a significant impact on the decisions of the Board of Directors of Canxin Limited.

while SMIC Holdings holds less than 30% of the shares and the overall change of Canxin shares to a joint stock company (I. e. February 2021 to date), the highest authority of Canxin shares is the general meeting of shareholders. Shareholders are more dispersed, SMIC Holdings does not hold more than 30% of the shares, Canxin shares believe that SMIC Holdings is not enough to have a significant impact on the decision-making of the general meeting of shareholders.

but before the reporting period, SMIC's indirect shareholding ratio of more than 40% during the period was identified as the actual controller, can core shares did not respond to this.

The chairman of the 1.2 is nominated by the second largest shareholder, and the first largest shareholder is only the director/general manager

although on the eve of the IPO filing, SMIC has retreated to the second largest shareholder with a shareholding ratio of less than 30%, the candidate for the key position of chairman of Canxin shares is still nominated by SMIC. At present, the largest shareholder Zhuang Zhiqing is only the general manager and director of the company.

according to the information disclosed in the prospectus and the inquiry letter, the current chairman of canxin shares is Zhao haijun, and the nominee is SMIC holdings. Zhao haijun has been the chairman of canxin shares since January 2017.

Zhao Haijun has a deep relationship with SMIC, the parent company of SMIC Holdings. As early as 2010, Zhao Haijun began to serve as SMIC's chief operating officer and executive vice president, and SMIC North general manager. From October 2017 to August 2022, he served as Executive Director and Co-CEO of SMIC; since August 2022, Zhao Haijun has served as Co-CEO of SMIC.

In addition, the current director of Canxin shares "Peng Jin" also serves as senior vice president of SMIC, and supervisor Liu Chenjian serves as director of SMIC's integrated financial management department.

Zhuang Zhiqing, the largest shareholder, is only the general manager and director. According to the prospectus, Zhuang Zhiqing joined Canxin in 2013 and served as Chief Technology Officer, General Manager and Director of Canxin Limited until February 2021. Zhuang Zhiqing has been the general manager and director of Canxin since February 2021.

in the second round of inquiry letter, the Shanghai stock exchange asked canxin shares to explain the specific operation of SMIC holdings, Zhuang Zhiqing and other relevant shareholders at the company's shareholders' meeting (including attendance, voting process, deliberation results, nomination and appointment of directors, etc.), the board of directors (including major decision-making proposals and voting, etc.), their positions in the company's operation and management, technology research and development, and their actual roles.

Canxin shares did not explain the situation of Chairman Zhao Haijun, but for Zhuang Zhiqing, Canxin shares explained that the company's senior management personnel include the general manager, deputy general manager, financial officer, board secretary, etc. Appointed by the company's board of directors. Zhuang Zhiqing and his concert parties cannot individually decide on the appointment of senior management of the company, and only one director has been nominated, which cannot have a significant influence on the board of directors. At present, Zhuang Zhiqing is mainly responsible for the daily operation and management of the company.

The chairman and two other senior executives have a strong relationship with SMIC, and how much influence SMIC has on the company remains to be answered.

The fairness and accuracy of related transactions are questioned

2.1 Business Independence Asked

In addition to equity and management, SMIC's influence on Canxin shares is also reflected in procurement.

The prospectus shows that in the first half of 2020-2023, the largest supplier of Canxin shares in each period was related party SMIC, whose procurement accounted for more than 90% of operating costs at one time, and was still as high as 74.33 in the first half of 2023, as shown in Figure 1.

in the first round of inquiry letters, the Shanghai stock exchange asked the issue of "independence and procurement" of canxin shares, asking canxin shares to explain whether related party procurement affects the issuer's operational independence, constitutes dependence on SMIC, and whether there is any transfer of benefits to the company or related parties or adjustment of costs and expenses through related party procurement; whether SMIC and its subsidiaries and the issuer have co-located offices, cross-personnel, asset sharing, financial mixing, etc., and further explain whether the issuer and SMIC are independent of each other in the light of the above matters.

At the review meeting, the Shanghai Municipal Committee also asked Canxin to explain whether the relevant related transactions affect the independence of Canxin.

In terms of specific procurement content, the prospectus shows that Chanxin mainly purchases wafers and masks from SMIC, while Chanxin also sells wafers, chips and masks to its top five customers.

In the second round of inquiry letters, the R & D independence of Canxin shares was also questioned. The SSE requires Canxin to explain the specific role played by SMIC in the chip design and mass production business, whether there is any joint research and development or common technology with Canxin, and whether there is any situation where customers designate suppliers or conduct business directly with suppliers.

Canxin explained that as of the date of the second round of inquiry responses (I. e., October 11, 2023), SMIC and the issuer did not have any joint research and development or shared technology and processes.

However, the prospectus shows that in the first half of 2020-2023, the R & D expense ratio of Canxin shares was 7.74 percent, 6.91 percent, 6.54 percent and 6.97 percent, respectively, and the average value of peer comparable companies was 22.26 percent, 19.02 percent, 17.59 percent and 18.17 percent, respectively. The research and development cost rate of Canxin shares is much lower than the average of comparable companies in the same industry, and its independent research and development capability is in doubt.

Against the backdrop of questionable business and R & D independence, Canxin's gross margin is also significantly lower than the industry average. In the first half of 2020-2023, the gross margin of Canxin shares was 17.25 percent, 17.1 percent, 19.63 percent and 27.46 percent, respectively, and the comparable company average was 35.32 percent, 37.86 percent, 39.33 percent and 35.88 percent, respectively.

2.2 wafer purchases cost thousands of yuan per wafer on average

The large volume and high percentage of related purchases are accompanied by anomalies in purchase prices.

the first round of inquiry letters show that in the first half of 2020-2023, the average purchase price of mass production wafers of canxin shares is 5182 yuan/piece, 5755 yuan/piece, 6747 yuan/piece and 6660 yuan/piece respectively. From 2020 to 2022 (data for the first half of 2023 have not been disclosed), SMIC's average wafer sales prices are 4210 yuan/piece, 4763 yuan/piece and 6381 yuan/piece respectively, the average purchase price of Cancore shares to SMIC is always higher than the average sales price of SMIC wafers, especially in 2020 and 2021, the price difference between each wafer is about 1,000 yuan.

In the second round of inquiry letters, the SSE questioned the reasonableness of the transaction price between the two parties. Canxin shares explained that the wafer purchase price is often not comparable due to the influence of product and market factors such as chip product characteristics, process characteristics, order scale and demand stability. at the same time, the company has a large variety of customized chip products, and the wafer purchase and sales prices are comprehensively affected by the product structure and product characteristics, so they are not comparable as a whole. As for the difference in purchase price, Canxin shares believe that the main reason is that there is a difference in the proportion of revenue from 65nm and below process node projects.

2.3 related transaction amount fight

In addition, it is worth noting that Canxin shares and SMIC Holdings disclose a large difference in the amount of the association.

The prospectus of Canxin shares shows that from 2020 to the first half of 2023, the amount of its related purchases to SMIC Holdings is 0.335 billion yuan, 0.713 billion yuan, 0.93 billion yuan, respectively.Yuan, 0.36 billion yuan.

And SMIC's annual report shows that from 2020 to 2022, SMIC's related sales with Chanxin and its subsidiaries were $0.328 billion, $0.461 billion and $0.622 billion, respectively, which were $17.3822 million, $0.252 billion and $0.308 billion less than the related purchases disclosed by Chanxin. In this regard, the Shanghai Stock Exchange asked Canxin shares to explain whether there is a related transaction is not related.