Asia Cement raises $220 million from zero-coupon CB

Asia Cement last night raised $220 million from the sale of a five-year, zero-coupon convertible bond, which it plans to use to repay maturing bonds. Due to strong demand, the deal was upsized in full, or by 10%.

The transaction came after the Taiwanese company’s share price on Monday hit its highest close since December. It is the second US dollar CB out of Taiwan this year after Far Eastern International Bank raised $150 million from a zero-coupon deal in late January.

The Asia Cement CB launched with a base size of $200 million, but came with an upsize option of $20 million that was exercised in full. As is typical for Taiwan CBs, the deal came with a zero coupon, but was marketed with a potential yield of up to 0.5%. The conversion premium was marketed at 23% to 28% over yesterday’s closing price of NT$37.50.

In the end, the deal was priced with a 0% yield and a 28% conversion premium, which translated into an initial conversion price of NT$48, the best terms for the company. There is an investor put at the end of year three, and an issuer call after three years subject to a 130% hurdle.

The pricing was quite aggressive compared to Asia Cement’s previous CB in June 2011 when it raised $172.5 million from a deal that was upsized by 38% and priced close to best terms for the issuer. That transaction resulted in a 0.3% yield and a 24.5% premium.

More than 100 investors participated in the transaction last night, with a good balance between long-only funds and hedge funds, a source said. The split between Asia and Europe was roughly 50/50, with some US participation.

Many of the investors were existing holders of the company’s outstanding CB, who like the exposure and wanted to add more. Others saw the deal as a good opportunity to get exposure to China’s cement price recovery, the source noted.

The credit spread was assumed at 180bp to 190bp, and the stock borrow cost was assumed at 3% to 3.5%, according to sources. The CB comes with a conversion price adjustment for all cash dividends. The final terms gave a bond floor of roughly 93% and an implied volatility of 26%.

The company plans to use the proceeds to repay its outstanding domestic bonds denominated in NT dollars that mature in 2013 and 2014, according to the term sheet.

Before the launch of the transaction, Asia Cement’s stock ended yesterday’s trading down 0.7% at NT$37.50. It is almost unchanged year-to-date, but has gained 5.6% since late March. By comparison, the Taiwan Stock Exchange Weighted Index, which was flat yesterday, is up 6% since the start of the year.

The order books opened at around 3pm Hong Kong time and closed in a couple of hours.

Goldman Sachs was the sole global coordinator for the deal, and Bank of America Merrill Lynch and BNP Paribas joined the bank as bookrunners, according to the term sheet.

Domestic cement consumption in Taiwan reached 12 million tonnes in 2012, and it is expected to be flat this year, Asia Cement said in an investor presentation in March. But the accelerated infrastructure investment and urbanisation policy will trigger an increase of cement demand in China, it also noted.