Analysis AXTI
AXT's funding deal comes with a three-year IPO test
Tongmei plans to raise money for more chip-materials production. The investors would gain a way out if its stock market debut fails to meet agreed conditions.
AXT's Chinese manufacturing subsidiary has signed a financing deal for at least about $285 million and as much as $545 million from outside investors. The planned money would support more production of indium phosphide, a material used in high-speed optical connections.
The investment in Beijing Tongmei Xtal Technology, known as Tongmei, is expected to close in December 2026, subject to required filings and other conditions.
The expansion follows a sharp improvement in AXT's business. Revenue reached $73.4 million in the quarter ended September 30, 2026, up from $28 million a year earlier. Net income attributable to AXT was $25.7 million, against a $1.9 million loss. The company credited strong demand for indium phosphide.
The money has an exit condition
If Tongmei has not completed a qualifying initial public offering within three years of closing, the new investors can require Tongmei to buy back their shares. An IPO is the company's first sale of shares on a public exchange.
A listing alone would not satisfy the agreement. The offering price must also give the investors at least a 13% annualized return for the IPO to qualify.
If an investor uses the buyback right, the price includes the original investment plus an 8% compounded annual return and any declared or accrued but unpaid distributions. Other specified events, including certain breaches of the agreements, can also trigger the right.
Tongmei withdrew its earlier Shanghai STAR Market application in July and shifted its efforts toward Hong Kong. That withdrawal gave an earlier group of investors separate rights to reclaim about $49 million, under different terms that do not include interest.
AXT keeps control and makes its own commitment
At the maximum outside investment, AXT expects to retain about 73.4% of Tongmei and continue including the subsidiary in its accounts. AXT would nominate eight of nine directors; the lead investor would nominate one.
Separately, AXT agreed to subscribe for $400 million worth of Tongmei shares before or at closing. The filing does not specify whether that subscription will be settled in cash or by converting existing funding within the group.
AXT has already raised substantial funds at the parent level. Its April stock offering brought in about $632.5 million before fees, with Tongmei's expansion among the intended uses. The new outside investment is in Tongmei shares, rather than a fresh sale of AXT's listed shares.
There is a route to later parent-share issuance: AXT may choose to buy investors' Tongmei shares when they exercise their exit rights, and can use AXT stock if agreed conditions are met.
The AXT company profile tracks the financial recovery, earlier listing plans and the funding terms to check next.