More than seven years since its last deal, Hon Hai Precision Industry returned to the equity-linked market to raise $500 million from a five-year convertible bond sale on Monday. It was able to capitalise on its soaring share price on the back of massive interest in Apple’s new smartphone, series, the iPhone X.
The Taiwanese electronics manufacturer – better known internationally as the biggest assembler of Apple’s smartphones – tapped the equity-linked market one working day after Apple started allowing customers to pre-order iPhone X last Friday. The overwhelming demand saw the first batch of the new gadget sell out within 10 minutes.
That scramble appeared to have extended into the capital market; Hon Hai’s new zero-coupon convertible bond, its first foray into the international equity-linked market since 2010, was fully upsized from the base offering of $400 million as investors flocked to the deal, according to sources familiar with the situation.
In the secondary market, the new bond, due 2022, traded up at 101.5/102 as of early Tuesday afternoon.
Having received approval from Taiwan’s Securities and Futures Bureau for the bond issue in late August, Hon Hai appeared to have missed the best window to raise funds as, following a boost from the iPhone X announcement on September 12, its share price dropped amid lacklustre sales of the iPhone 8 series.
But Hon Hai shares have ticked up again since early October on expectations of strong demand for theiPhone X. Eventually, Hon Hai was able to price its convertible bond over a reference price of NT$111.5, just 8% below the stock’s all-time high of NT$121.5.
For the new CB, Hon Hai came up with a standard structure that includes a five-year tenor, a three-year put, a three-year call provision subject to a 130% trigger, and full dividend protection. The Reg S-only deal was offered without coupon and yield, while the conversion price was fixed at NT$145 at launch, representing a 30.04% premium over the reference price.
Perhaps the only uncommon feature was the bond’s peg to the local currency. Instead of revisiting a US-dollar bond, Hon Hai opted for a new Taiwan dollar-linked bond that suggests bondholders could lose against the currency’s anticipated depreciation against the dollar.
But that did not stop investors from snapping up the new bond. Sources said the final order book was over $2 billion with participation from as many as 120 accounts – one of the largest books from a Taiwanese issuer.
Final allocation was skewed towards investors who have been wall-crossed ahead of launch, and the 10 biggest bidders were allocated nearly half of the deal.
Hon Hai’s new CB is the second deal out of Taiwan this year following Nanya Technology’s five-year deal in January.
Joint bookrunners of the bond sale were Bank of America Merrill Lynch, Citigroup and HSBC.
