Patient money buys into the chip plant

A silicon wafer 300 mm across is lifted from its carrier, and the fine circuitry on its surface breaks the light into bands of rainbow. In the visitors' corridor of a newly built chip plant overseas, this is where investors stop longest. This week the plant's second phase closed its equity financing: a pension fund, a sovereign wealth fund and an insurance asset manager have together taken 40 per cent of the shares in a phase that will cost about 12 billion in the local currency.

Money of this kind traditionally goes into airports, ports and power grids, assets that earn predictably for decades once built. Putting a factory that will not reach volume production for five years into the same basket was rare a few years ago. One research firm counts 19 wafer-plant projects with pension or insurance money behind them, up from four three years ago; seven are in the region where this plant stands.

The project at a glance

Buying a set of contracts

"We are not buying a rally. We are buying a set of fifteen-year contracts," says the pension fund's head of infrastructure investment. "The return curve looks more like a toll road than a technology share." Before signing, she says, her team asked most about three things: orders, engineers, and water and power. Besides the long-term agreements, the project company pointed to an apprenticeship scheme with three local technical colleges that trains 600 people a year, and to a reclaimed-water plant of its own that lets the factory reuse nine-tenths of its water.

The town around the plant has fewer than 200,000 people. Its government reckons that suppliers of equipment maintenance, chemicals and the like will bring about three times as many jobs as the plant itself.

The risk has not gone away. An industry researcher points out that chip demand moves in cycles of roughly four years, and that this plant must live through two of them between the first pile and payback; each quarter's delay in equipment delivery means working out the returns again. "Patience is the price of entry to this kind of investment," he says, "and also its moat."

The second-phase building is due to be topped out in a year, with the first equipment moving in six months later. All three investors say that if it reaches volume production on schedule they will consider the third phase now being planned.