17 November 2020
AXT to merge raw material companies BoYu and JinMei into Tongmei
AXT Inc of Fremont, CA, USA – which makes gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge) substrates and raw materials – has announced a strategic plan to access China’s capital markets in order to enhance its ability to support at scale the expected strong demand for compound semiconductor materials and to continue to boost 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 Beijing Tongmei Xtal Technology Co Ltd, 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 and their related entities in China are performing well and add breadth of product diversity to Tongmei, says AXT.
BoYu manufactures pyrolytic boron nitride (pBN) crucibles that are used when growing single-crystal compound semiconductor ingots and used as effusion rings growing organic light-emitting diode (OLED) tools. JinMei produces 7N+ purified gallium and other specialty materials.
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 includes several periods of review and is hence a lengthy process. Tongmei does not expect to accomplish this until mid-2022.
The listing of Tongmei on China’s STAR market will not change the status of AXT as a US public company, which 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 exchange for about a 7.14% minority interest in Tongmei, private equity firms will invest about $50m.
The first tranche investment documents were executed on 13 November in China, and about $22.5m is expected to be received in late November or early December. The second tranche of about $26.5m (for which investment documents have not yet been executed) is expected to fund in January 2021. AXT’s ability to retain these investments is contingent on completion of the STAR Market listing. Tongmei would be required to sell a minimum of 10% of its equity in the public offering, bringing the total minority interest held publicly to about 17.14%, or greater if Tongmei elects to increase the offering above 10%.
“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. Further, the additional capital will strengthen our ability to compete for larger business opportunities,” says CEO Morris Young.
“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,” he adds. “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.”
“The combination of AXT’s wafer manufacturing with BoYu’s and JinMei’s products and capabilities presents a compelling and well-rounded business model,” believes Young. “They synergistically serve a diverse set of customers and markets,” he adds. “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.”