Taiwan’s Cathay Financial raises $254 million from two-year CB

Cathay Financial last night priced a two-year zero coupon convertible bond that pays a 0.25% yield-to-maturity and offers a 27% conversion premium. The final deal size was $254.4 million, a source said.

It attracted huge demand from investors — for the deal size of about $250 million, there was demand of more than $1 billion, the source said. About 70 investors participated in the transaction, with demand coming from Europe and Asia.

There has not been any new CB in Asia since the end of May, when Taiwan-based Zhen Ding Technology Holding raised $175 million via a three-year CB.

Cathay Financial is the largest integrated financial services company in Taiwan, according to the Taiwan Stock Exchange website. The company, which was listed in 2001, offers life insurance, banking and property and casualty insurance products to individual and corporate customers in Taiwan through its subsidiaries, it says.

The deal came with a zero percent coupon, as is typical for Taiwan CBs, but was marketed with a yield-to-maturity of between 0% and 0.25%, and a conversion premium of 21% to 30% over Tuesday’s close of NT$30. The initial conversion price is NT$38.1.

Prior to the transaction, Cathay Financial’s stock ended yesterday’s trading up 1.5%, building on recent gains. But it is down 15% from its February peak of around NT$35, while the Taiwan Stock Exchange Weighted Index has also shed about 10% from this year’s high in March.

There is no greenshoe option as the deal will convert into treasury shares of the company, and the company only has 200 million of those shares, which is the same amount as the underlying shares of the deal, the source said.

An asset swap, which was sourced from Taiwanese banks, was available for around 20% of the deal size, but demand was so strong that it was not used at all, the person said.

The fact that investors like the company and its business and that it is a high quality credit likely contributed to the strong demand for the deal, the source said.

It resulted in a bond floor of about 95.8% and an implied volatility of 28%. The deal was launched at around 3.30pm and priced at around 7.30pm Hong Kong time.

According to the term sheet, Cathay Financial will use the proceeds for the repayment of indebtedness and working capital.

J.P. Morgan was the sole global coordinator and bookrunner for the deal.