Monday, May 20, 2024

Intel in ‘advanced talks’ with Apollo over $11bn funding for new Irish chip facility

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US semiconductor giant Intel has entered exclusive talks with Apollo Global to finance an $11 billion (€10 billion) chipmaking plant in Ireland, as large corporations increasingly turn to private capital groups instead of banks to fund their expansion projects.

Intel has been in talks to raise financing for an aggressive buildout of semiconductor fabrication plants as it shifts supply chains from Asia to western Europe and North America and modernises its chipmaking production facilities to meet rapid advancements in artificial intelligence technology.

The Santa Clara-based chipmaking pioneer had been in discussions with other private capital groups – KKR and Stonepeak – over talks to finance its new semiconductor plant in Leixlip, Co Kildare, before entering exclusive talks with Apollo, according to three sources briefed on the matter.

Apollo and Intel declined to comment. The Wall Street Journal earlier reported on the exclusive negotiations between Apollo and Intel.

Intel is in the midst of a multiyear plan to transform its business, with chief executive Pat Gelsinger seeking to regain leadership from rivals TSMC and Samsung in designing leading-edge chips, while overhauling the company’s manufacturing operations to build chips for competitors.

In March, the US government announced that it would provide Intel with almost $20 billion in direct funding and loans under the 2022 Chips Act to boost its capacity to build chips at new plants in Arizona, New Mexico, Ohio and Oregon.

Gelsinger has cast Intel as a national champion that can meaningfully shift chip production away from Asia to the US and Europe in the coming years, amid tensions with China. The company is also building a new government-subsidised plant in Germany.

Intel’s manufacturing business incurred operating losses of $7 billion in 2023, steeper than the year before. Intel’s lacklustre sales outlook has weighed on its share price, and it predicts that its manufacturing business will start to break even only in 2027.

Intel has already partnered with large private capital groups to finance the construction of new semiconductor fabrication plants. In 2022, Intel sold a stake of up to 49 per cent in a chipmaking plant it is building in Arizona to Canada’s Brookfield Infrastructure Partners for $15 billion in order to finance the $30 billion project.

Apollo has emerged as a large lender for investment-grade rated loans that are more complex than corporate bonds sold to the broader debt markets.

Last year, Apollo structured large investment-grade rated loans to companies including Air France/KLM and German property developer Vonovia, and has signalled it is rapidly expanding its capacity for similar arrangements.

This month, Apollo told its shareholders it expected to originate more than $200 billion in debt annually in coming years, fuelled by lending to investment-grade rated companies such as Intel. Apollo has told shareholders that its lending will focus on the construction of new infrastructure such as digital communications networks, data centres, renewable energy facilities and semiconductors.

Apollo’s lending is being supported by its insurance business, with more than $500 billion in assets, which generally can own these debts to maturity.

Intel has invested more than $34 billion since 1989 to transform a former stud farm in Leixlip, Co Kildare, into a chip fabrication plant and expand operations in Ireland. – Copyright The Financial Times Limited 2024

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