AXT Announces Strategic Plan to Access China’s Capital Markets

Rhea-AI Summary

AXT, Inc. has initiated steps to list its subsidiary, Tongmei, on China's STAR Market, merging two raw material companies into it. The company plans to secure approximately $50 million from private equity firms in exchange for a 7.14% minority stake. The first tranche of $22.5 million is expected by early December 2020, followed by a $26.5 million second tranche in January 2021. AXT will continue to operate under the Nasdaq symbol AXTI and maintain its Fremont, CA headquarters, aiming to enhance its capital structure and support future growth amidst expected strong demand in the semiconductor market.

Positive

• Initiated IPO process for Tongmei on China's STAR Market.
• Merger of two raw material companies enhances product diversity.
• Securing up to $50 million from private equity with minimal dilution.
• Continued focus on global opportunities and maintaining Nasdaq listing.

Negative

• Listing on STAR Market is a lengthy process with uncertain timelines.
• Dependent on successful private equity investment and market conditions.
• Potential geopolitical tensions may impact operations in China.

Subsidiaries Take First Step Towards an IPO in China
Private Equity Round Underway

• Process initiated to list shares of subsidiary, Tongmei, on China’s STAR Market
• Two raw material companies to be merged into Tongmei
• Definitive agreements executed for initial private placement of shares of Tongmei to meet listing requirements
• AXT to maintain its Nasdaq listing; its Fremont, Calif. headquarters; and its focus on global opportunities
• Conference call to discuss the announcement today at 2:30 pm PT. Details included in this release
  

FREMONT, Calif., Nov. 16, 2020 (GLOBE NEWSWIRE) -- AXT, Inc. (NasdaqGS: AXTI), a leading manufacturer of compound semiconductor substrates, today announced a strategic plan to access China’s capital markets in order to enhance its ability to support at scale the strong, expected demand for strategic compound semiconductor materials and to continue to elevate its business and manufacturing operations in support of Tier-1 customer requirements, as well as to replenish its cash with minimal dilution and further strengthen its financial structure.

AXT plans to merge two of its raw material companies into its wafer manufacturing company in China, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), subject to completion of definitive documentation and applicable laws. The two raw material companies, Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd. (“BoYu”) and Nanjing JinMei Gallium Co., Ltd. (“JinMei”), 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, Inc. as a U.S. public company. It is a U.S. company, headquartered in Fremont, California. It will continue to be listed on the Nasdaq Global Select Market under the symbol AXTI.

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.”

Conference Call

The company will host a conference call to discuss these results today at 2:30 p.m. PT. The conference call can be accessed at (844) 892-6598 (passcode 7117157). The call will also be simulcast at www.axt.com. Replays will be available at (855) 859-2056 (passcode 7117157) until, November 22, 2020. Additional investor information can be accessed at http://www.axt.com or by calling the company’s Investor Relations Department at (510) 438-4700.

About AXT, Inc.

AXT is a material science company that develops and manufactures high-performance compound and single element semiconductor substrate wafers comprising indium phosphide (InP), gallium arsenide (GaAs) and germanium (Ge). The company’s substrate wafers are used when a typical silicon substrate wafer cannot meet the performance requirements of a semiconductor or optoelectronic device. End markets include 5G infrastructure, data center connectivity (silicon photonics), passive optical networks, LED lighting, lasers, sensors, power amplifiers for wireless devices and satellite solar cells. AXT’s worldwide headquarters are in Fremont, California where the company maintains its sales, administration and customer service functions. AXT has manufacturing facilities in China and, as part of its supply chain strategy, has partial ownership in ten companies in China producing raw materials. For more information, see AXT’s website at http://www.axt.com.

Forward-Looking Statements

The foregoing paragraphs contain forward-looking statements within the meaning of the Federal securities laws, including, for example, statements regarding AXT’s plan to merge Tongmei, its wafer manufacturing company in China, with Boyu and Jinmei, Tongmei receiving the first tranche of private equity investment funds, signing investment documents to secure the second tranche of private equity investment funds into Tongmei and subsequently receiving such funds, completing other preliminary steps in connection with the proposed listing of shares of Tongmei on the STAR Market, being accepted to list shares of Tongmei on the STAR Market and the timing and completion of such listing of shares of Tongmei on the STAR Market. Additional examples of forward-looking statements include statements regarding the market demand for our products, our growth prospects and opportunities for continued business expansion, including technology trends and new applications, our market opportunity and ability to compete for business opportunities, elevating our manufacturing, enhancing our business processes and financial structure, our relocation and our expectations with respect to our business prospects and financial results. These forward-looking statements are based upon assumptions that are subject to uncertainties and factors relating to the company’s operations and business environment, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements contained in the foregoing discussion. These uncertainties and factors include, but are not limited to: the tax and legal consequences of merging Tongmei with Boyu and Jinmei, the lack of interest of private equity funds in China to invest in Tongmei, the withdrawal, cancellations or requests for redemptions by private equity funds in China of investments in Tongmei, the timing of receipt of private equity funds into Tongmei, the administrative challenges in satisfying the requirements of various government agencies in China in connection with the investments in Tongmei and the listing of shares of Tongmei on the STAR Market, continued open access to companies to list shares on the STAR Market, investor enthusiasm for new listings of shares on the STAR Market and geopolitical tensions between China and the United States. Additional uncertainties and factors include, but are not limited to, the timing and receipt of significant orders; the cancellation of orders and return of product; emerging applications using chips or devices fabricated on our substrates; end-user acceptance of products containing chips or devices fabricated on our substrates; our ability to bring new products to market; product announcements by our competitors; the ability to control costs and improve efficiency; the ability to utilize our manufacturing capacity; product yields and their impact on gross margins; the relocation of manufacturing lines and ramping of production; possible factory shutdowns as a result of air pollution in China; COVID-19 or other outbreaks of a contagious disease; tariffs and other trade war issues; the financial performance of our partially owned supply chain companies; policies and regulations in China; and other factors as set forth in the company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission. Each of these factors is difficult to predict and many are beyond the company’s control. The company does not undertake any obligation to update any forward-looking statement, as a result of new information, future events or otherwise.

Contacts:
Gary Fischer
Chief Financial Officer
(510) 438-4700

Leslie Green                
Green Communications Consulting, LLC
(650) 312-9060

FAQ

What is AXT's plan for its subsidiary Tongmei?

AXT plans to list Tongmei on China's STAR Market and merge two raw material companies into it.

How much funding is AXT aiming to secure for Tongmei's listing?

AXT aims to secure approximately $50 million from private equity firms for Tongmei.

When is the first tranche of investment expected for Tongmei?

The first tranche of approximately $22.5 million is expected to be received in late November or early December 2020.

Will AXT maintain its Nasdaq listing after the IPO?

Yes, AXT will maintain its Nasdaq listing under the symbol AXTI.

What are the implications of the merger for AXT and its shareholders?

The merger aims to enhance product offerings and support strong market demand, potentially increasing shareholder value.