AXT has arranged a potential equity investment of $285 million to $545 million in its subsidiary Tongmei, alongside a separate $400 million share subscription by AXT. The proceeds are intended to fund Tongmei’s expansion, particularly its indium phosphide semiconductor-substrate manufacturing capacity. If the outside investment reaches its maximum, AXT expects to own about 73.4% of Tongmei after the transactions.
The deal also gives the lead investor a board seat and other protections, including the right to seek repayment of its investment in certain circumstances if Tongmei does not complete a qualifying public offering.
Key details
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Funding range: The outside investors, led by BNK-B3 HK Holdings and including an institutional investor affiliated with an existing Tongmei customer, will invest at least about $285 million and up to about $545 million in Tongmei ordinary shares. AXT separately agreed to subscribe for about $400 million of Tongmei shares on or before the outside investors’ closing. Together, the planned funding would total about $685 million at the minimum outside investment or about $945 million at the maximum.
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Use of proceeds: Tongmei plans to use the money to expand manufacturing capacity for indium phosphide substrates, grow its principal business operations, pay for capital expenditures and support working capital needs.
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Ownership: AXT is Tongmei’s controlling shareholder. Assuming the outside investors contribute the maximum amount, AXT would own approximately 73.4% of Tongmei after the transactions. The company did not state AXT’s resulting ownership at the minimum investment level.
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Timing and conditions: The outside investment may close in one or more stages and is subject to customary conditions, including required government approvals. If the minimum investment has not closed by December 20, 2026, the share-purchase agreement will terminate, though the parties agreed to consider an extension if required approvals are still pending. Additional Tongmei-designated strategic investors and investors approved by the lead investor may participate within the overall maximum, provided their purchases close by December 31, 2026.
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IPO objective: After closing, Tongmei, AXT and the investors will use reasonable best efforts to pursue a qualifying public offering of Tongmei as soon as possible. A qualifying offering must be an underwritten public offering on an eligible exchange, including Hong Kong’s Main Board, and its price must provide each investor with an annualized return of at least 13%, compounded annually. The agreement does not set a firm IPO date.
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Board and investor protections: The lead investor can nominate one director to Tongmei’s nine-member board; AXT will nominate the other eight. The lead investor also has consent rights over certain transactions that could adversely affect the investment. Investors have information and inspection rights while they collectively hold more than 4.5% of Tongmei’s shares, as well as certain rights to participate in future share issues, subject to exceptions.
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Priority in a sale or distribution: The investors receive a liquidation preference if Tongmei is sold or liquidated and priority in Tongmei profit distributions.
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Potential redemption obligation: Each investor may require Tongmei to redeem its shares if Tongmei has not completed a qualifying IPO within three years after closing. Redemption rights may also arise from certain uncured material breaches or legal violations, specified criminal convictions, certain other redemption commitments by Tongmei, or a change of control of Tongmei. A change of control of AXT is also a trigger if AXT’s common stock ceases to be registered for public trading. In specified cases, the redemption price is the investor’s subscription price plus an 8% annual compounded return and any declared or accrued but unpaid distributions. The redemption right belongs to each investor; it is not automatic.
Plain-English implications
The proposed funding would provide Tongmei with substantial capital for expansion while leaving AXT in control under the stated maximum-investment scenario. The investor protections include board representation and potential redemption rights, creating obligations for Tongmei if an IPO is not completed within three years or certain other specified events occur. The investment is not assured: the agreements allow for termination if the minimum closing deadline is missed, subject to possible consideration of an extension.