Next Orbit to sell its entire stake in ISMC to Delhi-based B C Jindal group

Next Orbit Ventures the lead partner in ISMC, a consortium which applied to the government to set up a semiconductor fab plant, has decided to close an agreement to sell its entire stake in the company to the Delhi-based B C Jindal group.
 

Next Orbit, an investment company based in Mumbai, says it made the move after the Indian Semiconductor Mission or ISM — the body which scrutinises the  fab proposals — suggested that it should rope in a strategic investor for the project to be considered.
 

Confirming the development, Ajay Jalan, founder and managing partner of Next Orbit, said the company is going to sell its entire stake in ISMC to the B C Jindal group in Delhi.
 

“We have done so as advised by the ISM which wanted a strategic investor to come in,” said Jalan.
 

Sources say the sale is subject to the project getting clearance from the government.  
 

An e-mail to the $2 billion B C Jindal group did not elicit any response. The group is run by Shyam Sunder Jindal and has interests in a range of geographies and areas spanning polyester, polypropylene films, power generation, cold rolled steel strips, and galvanised sheets.
 

One of its flagship companies is Jindal Poly Films, the country’s largest player in biaxially oriented polyethylene terephthalate film (BOPET) and among the top 10 in the world. Jindal Films has headquarters in Luxembourg and Lagrange in the US.

ISMC is one of three contenders who had applied to set up a semiconductor fab unit under the government’s semiconductor scheme last year. The scheme has earmarked $10 billion in financial incentives.
 

The other applicants included the Vedanta-Foxconn joint venture and the Singapore-based consortium IGSS. The applications were submitted to the government by 15 February 2022. The companies who are selected will be given 50 per cent of the cost of the project as a subsidy upfront to make the project viable.  
 

The ISMC proposal envisaged an investment of $3 billion to manufacture 45 nanometer chips to begin with, going to nanometers of 45 and 22 later on.  The consortium had also tied up for land with the Karnataka government for the fab plant.

 Next Orbit has estimated that a 50 per cent subsidy, the 26 per cent subsidy offered by the Karnataka government, and a debt to equity ratio of 65 to 35 per cent means that the equity needed for the project would be around $276 million.
 

ISMC has been able to tie up its technology partner in Israel-based Tower Corporation, a crucial requirement for getting clearance for its proposal. Tower is being acquired by Intel. ISMC had asked for a conditional clearance for the project pending the acquisition.
 

But the project has got stuck. Intel’s acquisition of Tower requires a green signal from the Chinese government which is a big customer. Geo-political tensions between the US and China have delayed that clearance and it is now expected to come sometime in the middle of the year.
 

Also, the semiconductor scheme is also being tweaked by the government. The Ministry of Electronics and Information Technology will soon announce that firms interested in setting up a fab plant can now apply on tap and there will be no restriction on the timeline, unlike the existing scheme’s 45 day deadline.
 

The ministry will also allow existing applicants such as ISMC and IGSS to amend their proposals to meet the requirements of the government without any deadlines.
 

One such requirement is that an applicant must get a strong strategic anchor investor to lead the project.   

STORY SO FAR

• Next Orbit’s decision to sell stake in ISMC is in response to advice from ISM to get a strategic investor
• Project also got stuck due to lack of clarity on whether China will give permission to Tower
• Corporation (ISMC’s partner) to sell to Intel
• Next Orbit had asked for conditional clearance of thedeal pending the Tower deal 
• Consortium needs to invest $276 mn as equity in the $3-bn project. Rest will come from subsidies from Centre, Karnataka govt and debt