Taiwanese touch-screen manufacturer TPK Holdings raised $383 million from a concurrent sale of a zero-coupon convertible bond and equity on Wednesday.
The convertible bond has a five-year maturity and a three-year investor put with an issuer call after three years, according to a term sheet seen by FinanceAsia. It offers a 1.5% yield with a conversation premium of 15% to the March 31 closing price of NT$219 per share.
Barclays, JP Morgan and HSBC launched the convertible bond with a base issue size of $150 million and two separate upsize options of $50 million each.
Alongside the convertible, TPK issued 20 million global depository receipts (GDRs) at $6.68 to $6.82 per share, representing a 2.5% to 4.5% discount to the March 31 closing price.
The convertible bond books closed Wednesday in Hong Kong multiple times covered, which allowed the issuer to exercise both upsize options and boost the deal size to $250 million.
“In the end the book was massively oversubscribed so we exercised the full $250 million [for the convertible],” one source told FinanceAsia. The bonds are due on April 8, 2020 with a credit spread between 300 and 350 basis points.
A combination of long-only investors and hedge funds bought in the convertible note, although the source noted the hedge funds came into the deal on an long only basis, and will therefore not be shorting the stock. “That speaks to [TPK’s] good fundamental story,” the source said. “[It] was able to execute a full outright trade.”
A second source close to the deal noted that the lack of an asset-swap for a convertible launched in Taiwan is unusual, particularly for a stock as liquid as TPK.
The equity book meanwhile was also oversubscribed, attracting a mix of long-only institutional investors and hedge funds, although the deal priced at $6.68 per unit, the low end of the initial $6.68 to $6.82 range. “There might have been some hedging from when the deal launched and where it ultimately settled,” the source said. “[But] it’s really just an outright trade. The cost of borrow is so expensive.”
A number of investors participated in both tranches. There were over 100 lines in total, with the second source noting that between 20 to 30 investors placing orders received no allocation because of robust demand.
Proceeds will go towards purchasing raw materials overseas.
TPK’s shares in Taiwan have risen 18% in the past 12 months and are up 11% year-to-date. It is currently trading at 18.80 times estimated 2015 earnings, trading roughly $60 a day.
The Taipei-based company produces screens for smart phones, tablets, eBooks, laptop computers, point-of-sale kiosks, computer games and ATMs. It also produces screens for gambling systems, industrial control systems, medical products, handheld game consoles, and touch remote controls.
Revenues for the fourth quarter 2014 totalled NT$39.6 billion, a 21% rise from the third quarter, but down 5.5% compared to the same prior-year quarter, according to the company’s earnings statement. Profits meanwhile rose to NT$2.9 billion in the fourth quarter, a 34% jump over NT$2.17 billion in the third quarter, but down 4% from the NT$3.03 billion in the fourth quarter 2013.
For the full year, revenues totalled NT$129.5 billion, down 18.6% year-on-year, as revenues for small- tablet-size and large size products declined by 14%, 34% and 50% in 2014 compared with 2013.
Equity-linked outlook
TPK’s deal puts a welcome marker in the sand at a time when equity-linked issuance is down. Total issuance for Asia Pacific including Japan so far this year up to April 1 is $5.11 billion, compared with $5.69 billion for the same prior year period, according to Dealogic data.
Some $3.05 billion has been raised in Japan via 15 deals so far this year, compared with $985 million in China and $733 million in Taiwan.
Excluding Japan, TPK is the second largest convertible bond this year, behind only Shanghai Electric Group’s $974 million note in February, Dealogic data shows.
“This is [one of] the first deals this year, and as a result, there was a bit of nervousness before it launched. It was well-flagged — investors knew it was coming, But there was still nervousness about how a fully-outright deal would be received in the market given how quiet it’s been,” the first source said. “The response has been that investors want more paper.”
“We’re expecting to see more deals like this, particularly in Taiwan,” the second source added.
