Foxconn looks for new partners as Vedanta JV hits snag
What's the story
Foxconn and Vedanta's semiconductor joint venture (JV) was expected to be the cornerstone of India's semiconductor ecosystem.
However, Vedanta's recent financial troubles have led to questions about the JV's future. According to the Economic Times, the Taiwanese contract manufacturer has started reaching out to other companies to find a new partner.
Let's see why Foxconn is looking for a new partner.
Context
Why does this story matter?
In September 2022, Vedanta signed a memorandum of understanding (MoU) with Foxconn to set up a semiconductor manufacturing facility in Gujarat.
The project worth Rs. 1.54 lakh crore was touted by many as India's grand entry into chip making. However, things haven't been going as planned since signing the MoU.
Foxconn's decision to look for a new partner is a culmination of several issues.
Concern
Foxconn started looking for new partner as per Centre's suggestion
Per the ET report, it was the Indian government that suggested Foxconn look for a new business partner. The government is concerned about Vedanta's financial stability.
After the government's suggestion, Foxconn held "informal discussions" with two "large domestic business groups." The talks are, however, at an early stage.
Why is the government worried about Foxconn's financials?
Debt
Vedanta has to repay $2.2 billion debt this financial year
Vedanta has a debt problem. The Anil Agarwal-led company owed $4.2 billion in FY24.
It paid $2 billion in the first quarter. The company has been trying to raise finances for the remaining $2 billion.
The firm aims to become debt-free in the next two-three years, but the way it is raising money has made the government suspicious about its financial health.
Rivals
Vedanta approached its rivals to raise funds
Vendata has been largely relying on brand monetization, refinancing, and transfer of general reserves to retained earnings to make debt repayments.
The company even approached two of its rivals, commodities trading group Trafigura and mining company Glencore International AG, to raise funds. It raised a combined $450 million from them.
The Centre wasn't happy with this, the report added.
Incentives
There are differences between them over the application for incentives
There are also differences between Foxconn and Vedanta regarding the changes to their application for incentives under the India Semiconductor Mission (ISM).
The two first applied for incentives in 2022, but the government is yet to approve them. Last week, Union Minister Ashwini Vaishnaw said the companies have been asked to resubmit their proposal for semiconductor manufacturing.