Semiconductor fab firms find funds scarce

Written by Vrishti Beniwal | New Delhi, Dec 27 | Updated: Dec 28 2007, 06:54am hrs
Fund raising is proving to be a daunting task for companies planning to set up semiconductor fabrication plants in India. Hindustan Semiconductor Manufacturing Company (HSMC), Signet Solar and SemIndia, which were among the first to commit investments after the semiconductor policy was announced earlier this year, havent yet submitted applications to the government, as they arent able to secure funds for their projects, say sources.

HSMC, Signet Solar and SemIndia have committed investments worth $4 billion, $2 billion and $3 billion, respectively. Under present guidelines, a company must invest at least Rs 2,500 crore (around $625 million) in a fab and Rs 1,000 crore in the ecosystem unit (LCD, solar cells, etc) to be eligible for 20% capital expenditure incentives.

But investors are reluctant to put money in an industry that is entirely new in India. While an email query sent to HSMC and Signet Solar failed to elicit a response, SemIndia has already admitted that it is facing fund-raising problems.

The semiconductor industry is highly cyclical with wafer-thin margins. It takes at least three years for a company to break-even. Chinas eight-year-old semiconductor industry is still not making profits. Given the poor infrastructure in India, and the possibility of low domestic demand, investors are cautious about their return on investment, said an executive with a global semiconductor company.

To date, the government has received only three applications: from Moser Baer, Titan Energy Systems (for a Rs 6,000-crore solar fab each) and Videocon (a Rs 8,000-crore LCD fab).

Its logical that the ecosystem of solar fabs and ATMP plants are the first step of this complex food chain. Chip manufacturing would be the final stage, said Poornima Shenoy, president, India Semiconductor Association.