AXT Second Tranche Private Equity Investment in China Largely Complete

Rhea-AI Summary

AXT, Inc. announces significant progress toward a STAR Market IPO for its Chinese wafer manufacturing subsidiary, Tongmei. The second tranche of investment, amounting to $25 million from seven private equity firms, was largely completed in December 2020, with an additional $1.5 million expected to close this January, bringing total investments to approximately $49 million for a 7.28% minority interest. This strategic initiative is crucial for Tongmei's IPO aspirations in mid-2022, while AXT continues to operate as a U.S. public company listed on the Nasdaq under AXTI.

Positive

• Completed second tranche investment of approximately $25 million.
• Total planned investment reaches around $49 million, indicating strong private equity support.
• Progress towards STAR Market IPO reflects growing market opportunities.

Negative

• Potential delays in the IPO process due to lengthy review periods.
• Geopolitical tensions may impact investor enthusiasm for new listings on the STAR Market.

STAR Market IPO Process Summary Available on AXT’s Investor Relations Website

FREMONT, Calif., Jan. 06, 2021 (GLOBE NEWSWIRE) -- AXT, Inc. (NasdaqGS: AXTI), a leading manufacturer of compound semiconductor substrates, today announced that the second tranche of the private equity investment in its wafer manufacturing company in China, Beijing Tongmei Xtal Technology Co., Ltd. (“Tongmei”), was largely completed in December 2020.   The second tranche investment was originally scheduled to fund in January 2021. In December, seven private equity firms invested approximately $25 million in the second tranche. An additional $1.5 million is expected to be invested in January 2021, closing the second tranche at approximately $26.5 million. The first tranche, totaling approximately $22.5 million, funded in November 2020. Upon the completion of the final $1.5 million investment, the capital raise will total approximately $49 million in exchange for an approximately 7.28 percent minority interest in Tongmei.

AXT previously announced on November 16, 2020 a strategic plan to access China’s capital markets and progress to an initial public offering by Tongmei on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd (the “STAR Market”). 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.

“We are pleased that the second tranche participants accelerated the investment schedule,” said Morris Young, CEO. “Their strong support and enthusiasm underscore the exciting applications and customer opportunities for which we are preparing this year, and their investment is an important milestone in Tongmei’s progress toward a STAR Market IPO in 2022.”

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. AXT has posted on its website a brief summary of the plan and the process. The listing of Tongmei on China’s STAR Market will not change the status of AXT, Inc. as a U.S. public company headquartered in Fremont, California. It will continue to be listed on the Nasdaq Global Select Market under the symbol AXTI.

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 an additional $1.5 million that is expected to be invested in the second tranche in January 2021, 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 withdrawal, cancellations or requests for redemptions by private equity funds in China of investments in Tongmei, the timing of receipt of additional 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 recent investment has AXT, Inc. made in Tongmei?

AXT completed a second tranche investment of approximately $25 million in Tongmei, totaling about $49 million across both tranches.

What is the timeline for Tongmei's IPO on the STAR Market?

Tongmei does not expect to complete its IPO on the STAR Market until mid-2022.

How much minority interest in Tongmei did AXT secure?

AXT secured an approximately 7.28% minority interest in Tongmei through its investments.

What challenges could affect Tongmei's IPO plans?

Challenges include lengthy review processes and geopolitical tensions that might affect investor interest.

Is AXT, Inc. still listed on the Nasdaq after the investment?

Yes, AXT continues to be listed on the Nasdaq Global Select Market under the symbol AXTI.