AXT Announces Plan To Access China Capital Markets
Process initiated to list shares of subsidiary, Tongmei, on China’s STAR market
AXT, a US manufacturer of compound semiconductor substrates, has announced a plan to access China's capital markets to enhance its ability to support strong, expected demand for strategic compound semiconductor materials and to grow its business and manufacturing operations, as well as to replenish its cash.
AXT plans to merge two of its raw material companies into its wafer manufacturing company in China, Beijing Tongmei Xtal Technology, subject to completion of definitive documentation and applicable laws. The two raw material companies, Beijing BoYu Semiconductor Vessel Craftwork Technology, and Nanjing JinMei Gallium, and their related entities in China are performing well and add breadth of product diversity to Tongmei.
AXT will seek to list shares of Tongmei on the Shanghai Stock Exchange's Sci-Tech innovAtion boaRd (the STAR Market), an exchange intended to support innovative companies in China. The process of going public on the STAR Market includes several periods of review and, therefore, is a lengthy process. Tongmei does not expect to accomplish this goal until mid-2022.
The listing of Tongmei on China's STAR market will not change the status of AXT as a US public company. It is a US company, headquartered in Fremont, California. It will continue to be listed on the Nasdaq Global Select Market under the symbol AXT.
To qualify for a STAR Market listing, Tongmei is required to have multiple independent shareholders. The first major step in this process is engaging reputable private equity firms in China to invest funds in Tongmei. In exchange for approximately a 7.14 percent minority interest in Tongmei, private equity firms will invest approximately $50 million.
The first tranche investment documents were executed on November 13, 2020 in China and the first tranche of approximately $22.5 million is expected to be received in late November or early December 2020. The second tranche of approximately $26.5 million is expected to fund in January 2021. The second tranche investment documents have not yet been executed.
AXT's ability to retain these investments is contingent upon a successful completion of the STAR Market listing. Tongmei would be required to sell a minimum of 10 percent of its equity in the public offering, bringing the total minority interest held publicly to approximately 17.14 percent, or greater if Tongmei elects to increase the offering above 10 percent.
“Pursuing a listing on the STAR Market gives us the ability to replenish our cash and increase our market value for our shareholders with minimal dilution,” said Morris Young, chief executive officer.
“Further, the additional capital will strengthen our ability to compete for larger business opportunities. We have largely completed the relocation of our manufacturing lines and now our market-leading portfolio of materials is intersecting with what we believe to be some of the biggest, most influential technology trends of the next decade, such as 5G telecommunications, data center connectivity, LED-based lighting and display, and laser-based sensing.
"In addition to these opportunities, we believe new applications across our portfolio are creating exciting incremental opportunities on the horizon. Strengthening our balance sheet can give our customers greater confidence in our ability to support at scale the strong, expected demand for our strategic compound semiconductor materials.”
BoYu manufactures pyrolytic boron nitride (pBN) crucibles that are used when growing single-crystal compound semiconductor ingots and used as effusion rings growing OLED tools. JinMei produces 7N+ purified gallium and other specialty materials.
“The combination of AXT's wafer manufacturing with BoYu's and JinMei's products and capabilities presents a compelling and well-rounded business model,” Young continued. “They synergistically serve a diverse set of customers and markets, providing world-class materials to the semiconductor industry. We believe that the convergence of a strong market opportunity with state-of-the-art manufacturing capabilities and a diverse portfolio of products will make Tongmei an attractive company for the STAR Market and create incremental value for our shareholders.”