ETI Scales Up Flip Chip LED Investment with Private Placement

News Source: 
National Business Daily

Elec-tech International (ETI) recently announced it would be issuing 378 million shares through a private placement to raise RMB 4.5 billion (US $720 million) for flip chip  LED and package related investments, according to a report from National Business Daily (NBD).

The shares issued are valued at RMB 11.89 per share to raise a total fund of RMB 4.5 billion. The company will allocate RMB 2 billion to LED flip chip projects, RMB 1.5 billion for LED chip package, and RMB 1 billion to maintain the company’s financial liquidity. Issuing shares will cost an estimated RMB 1.19 billion.

According to the company, funds raised from the private placement will expand the company’s upstream LED epiwafer, LED chip and midstream LED package supply chains. After completing the LED project constructions, the company will be able to fully utilize its advantages in the LED supply chain, while meeting its in-house manufacturing and operation demands.

Following the launch of its flip chip LED project, ETI estimates flip chip LED production capacity will reach 5 billion PCS per year. ETI estimates its flip chip LEDs will generate a revenue of nearly RMB 2 billion, net profit of RMB 423 million, while Internal Rate of Return (IRR) of 14.8%.

Meanwhile, upon completion the company’s LED package project is expected to meet demands for 4.25 billion flip chip LED packages. ETI projects revenues from the finished LED package project to reach RMB 2.97 billion and generate a net profit of RMB 268 million, while realizing an IRR of 15.2%.

ETI CEO Donglei Wang had acquired 350 million shares through Wuhu ETI, and has a 25.05% stake in the company. Although, Wang’s stake in ETI will drop to 19.71% after the latest private placement, his position as the company’s controlling shareholder remains unchallenged.

As of March 31, 2015, ETI’s total debt reached RMB 7.2 billion, and its debt to asset ratio peaked to 55.03%, which is significantly higher compared to other listed small electronic appliance and LED companies in 2014. From 2012 to 2014, the company’s financial expenditure was respectively RMB 85.62 million, RMB 220 million and RMB 268 million. The uptick in financial expenditure has eroded the company’s profitability. ETI can save approximately RMB 59.5 million with the RMB 1 billion increase in financial liquidity.

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