SMIC's Shanghai-Listed Shares Fall After Plan to Take Full Control of Unit

By Sherry Qin

Semiconductor Manufacturing International Corp.'s Shanghai-listed shares plunged, after China's largest chip maker unveiled a plan to issue shares to take full control of a unit, raising share-dilution concerns.

SMIC's Shanghai-listed shares declined as much as 12% early Tuesday before paring losses to be down 8.8% at the midday break, outpacing the decline in the benchmark stock index. The chip maker's stock shed as much as 3.7% in Hong Kong before erasing losses to rise 0.8%.

SMIC said in late August that it was seeking to buy the shares in Semiconductor Manufacturing North China (Beijing) Corp. that it didn't already own. It has a 51% stake in the unit.

The chip maker said it would acquire the shares from state investors such as the National Integrated Circuit Industry Investment Fund and the Beijing Semiconductor Manufacturing and Equipment Equity Investment Center.

SMIC's A shares had been halted from trading since Sept. 1 before they resumed trading in Shanghai on Tuesday morning.

The chip maker said that it plans to fund the acquisition by issuing an undisclosed number of A shares at 72.40 yuan each, equivalent to $10.15, representing a discount to its last closing price of 114.76 yuan before the trading halt. The new shares will dilute existing shareholders' ownership in percentage terms and the value of their shares.

SMIC's Hong Kong-listed shares retreated last week when its A shares were halted from trading. Investors in mainland China are catching up on last week's market moves on top of the acquisition news, Morningstar analyst Phelix Lee said.

SMIC's plan to take full control of the unit also highlights the consolidation in China's semiconductor industry to better utilize resources.

SMNC is a 12-inch semiconductor foundry founded in 2013 as a joint venture funded by SMIC and investors from Beijing. The deal will further improve SMIC's asset quality, enhance business synergy and promote its long-term development, the company said in a filing to the Shanghai Stock Exchange.

Hua Hong Semiconductor, China's No. 2 foundry, said last month that it planned to take a controlling stake in sister company Shanghai Huali Microelectronics, to resolve "same-industry competition" between the two foundries and consolidate resources.

Write to Sherry Qin at sherry.qin@wsj.com