Hoku Scientific Inc., a one-time success story for Hawai'i's technology sector, is giving a controlling interest to a Chinese company in a move staving off a possible bankruptcy for a subsidiary.

The Honolulu-based company yesterday announced an agreement to sell a 60 percent interest in the company to Tianwei New Energy Holdings Co., a firm that is part of one of China's largest makers of power transmission.

Hoku said the transaction will relieve its money pressures while opening up bigger markets to it. It had faced questions about its viability as it searched for money to complete a $390 million polysilicon manufacturing plant it is building in Pocatello, Idaho.

In July, the company had noted it might be forced to shut down if its cash problems were not resolved and hired an investment bank, Deutsche Bank Securities, to explore a sale of the company.

Hoku said its board of directors concluded the transaction with Tianwei was the only viable option it had to avoid a bankruptcy and sell off its Hoku Materials polysilicon business.

"It's a very significant transaction for us," said Dustin Shindo, Hoku's president and chief executive officer, explaining the transaction answers financing questions the company faced while opening up huge markets in Asia for Hoku.

"It's more than just money."

Hoku was founded about nine years ago and initially focused on developing a membrane, or engine, that drives fuel cells. Hoku enjoyed attention as one of the state's more notable high technology companies and in August 2005 went public, selling shares for $6 each.

In 2006 it announced plans for manufacturing polysilicon, a material used in making photovoltaic cells, as it wound down its fuel cell business. Besides the polysilicon plant, Hoku also operates a solar energy design and installation business in Hawai'i.

Hoku's finances have suffered, however, from a downturn in polysilicon prices and a freeze in credit markets that has made getting all the financing for the Idaho plant difficult.

It said the transaction with Tianwei should relieve its financing pressures and provide enough money to complete construction to the point where it could start shipments of polysilicon to customers in the first quarter of next year.

Hoku made the announcement after regular markets had closed, during which its shares sank 4 cents to $2.14. In after-hours trading after the news was released, the shares jumped to as much as $3.50.

The transaction is set to close in October after a review by the Chinese government and customary closing conditions. Hoku said it was able to skip obtaining approval from its own shareholders under a Nasdaq exemption allowing such exceptions when getting approvals would jeopardize the business's financial viability.

The transaction marks an evolution in the relationship between Hoku and Tianwei, which had been lined up as a customer for the polysilicon plant. As such, it had provided the Hawai'i company with $79 million of prepayments for the material.

Hoku said $50 million of that will be converted into 33,379,287 shares of common stock and warrants to buy another 10 million shares.

In addition, there will be $50 million of initial debt financing by Tianwei and China Construction Bank. Hoku said this, along with other prepayments from existing customers, will help it get the plant to a point where it can start shipments of polysilicon, a material used in making photovoltaic cells.

Hoku's current shareholders will continue to own 40 percent of the voting shares and the company's shares will continue to trade on the Nasdaq stock market. Tianwei will get to nominate four of the seven directors on Hoku's expanded board, including its chairman.

The agreement appears to help resolve financing issues faced by Hoku as it searched for money to remain in business and to complete the Idaho facility. The credit crunch and a drop in polysilicon prices had inhibited the company's ability to get loans for the plant.

Shindo and others in Hoku's management will remain with the company, and the headquarters will remain in Hawai'i.

Tianwei, a Chengdu, China-based enterprise, is part of the Baoding Tianwei Group Co. Ltd., a company with 8,000 employees and assets of $2.7 billion.