Anil Agarwal's $19-bn chipmaking plant dream at risk as hurdles mount

By Sankalp Phartiyal and Sudhi Ranjan Sen

Billionaire Anil Agarwal’s plan to build a $19 billion chipmaking plant in India is floundering as his venture struggles to secure a technology partner and faces challenges in obtaining financial incentives from the government.

Seven months after Agarwal announced a chip partnership between his Vedanta Resources Ltd. and Taiwan’s Hon Hai Precision Industry Co., the venture is yet to tie up with a fabrication unit operator or license manufacturing-grade technology, people familiar with the matter said. One of those is required for the venture to receive the significant financial incentives the government has pledged for such projects.

 

The venture’s difficulties highlight how hard it is to set up new semiconductor plants, massive complexes that cost billions to construct and require very specialized expertise to run. Metals and mining group Vedanta and iPhone assembler Hon Hai have no significant chipmaking experience, yet they’re among the first to try to take advantage of India’s ambition to build a semiconductor industry.

Winning government funding is key to fulfilling Agarwal’s chip dream, given his broader empire is facing intensifying financial strain. The billionaire, struggling to shake off the weight of a massive debt pile in his commodities business, is considering divesting a less than 5% stake in Mumbai-listed Vedanta Ltd. in a last ditch effort to reduce borrowings, Bloomberg News reported last month.

The venture’s discussions with GlobalFoundries Inc. and STMicroelectronics NV to license chip fabrication technology haven’t resulted in agreements, the people said, asking not to be identified as the discussions are private. It’s unclear if the talks are still alive.

Vedanta, in an emailed response to questions, said it is committed to the plant and has “identified a strong technology partner to make this project a huge success.” It didn’t name the partner or say whether an agreement has been reached.

Hon Hai, also known as Foxconn, didn’t respond to requests for comment. GlobalFoundries, STMicro and India’s technology ministry also didn’t immediately respond to queries.

While it’s working on securing a partner, the venture has submitted a capital expenditure estimate of $10 billion to the Indian government, the people said. The government considers that figure inflated and estimates $5 billion is closer to the true cost, they said. If all the requirements for incentives are met, the government could pay up to a half of a project’s cost. Vedanta said its expense estimate is at par with other similar projects.

Prime Minister Narendra Modi’s administration has launched an ambitious $10 billion drive to jump start local chip production, joining several countries including the US in trying to boost chip output to reduce reliance on expensive imports and dependence on Taiwan and China. India’s plan has yet to result in any of the major global chip players shifting base to the South Asian nation, underscoring the massive challenge supply chain shifts involve.

Separately, a chipmaking plan by another consortium — a $3 billion investment for a fabrication unit in southern Karnataka state — stands stalled as the group’s technology partner Tower Semiconductor Ltd. awaits guidance from new parent Intel Corp., which is working to complete the acquisition, people familiar with the matter said.

Tower didn’t immediately respond to a request for comment.