Marking the first equity issue after Chinese New Year, an $85 million convertible for Ambit Microsystems was launched yesterday (Monday) by Goldman Sachs, with Credit Suisse First Boston as joint-lead. The five-year zero coupon deal also represents the first capital markets transaction by the company to raise primary proceeds, following the sell-down of a stake by its parent Acer Inc last month.
Convertible specialists say that terms seem fairly reasonable, with the small deal size and straightforward structure causing barely a ripple in the grey market where the deal was quoted at 99.25% to 100.25% within a few hours of launch.
Scheduled to be priced on or before February 21, the deal has an indicative conversion premium of 13% to 18%, yield-to-put of 3.75% to 4.25%, put price of 109.7% to 111.1% and redemption price of 120.4% to 123.4%. There is also hard no call for two years, thereafter subject to a 115% hurdle and annual re-sets subject to an 80% floor.
Co-managers comprise ABN AMRO, Citibank, Chinatrust Securities, SG Securities and UBS Warburg.
Terms are more generous than both Siliconware Precision Industries (SPIL) and Macronix, both of which have launched deals with two-and-a-half year puts over the past few weeks and neither of which included annual re-sets. SPIL, for example, secured a zero coupon deal with a 15% conversion premium, 2.25% yield and premium redemption at 111.8%, while Macronix priced with a 0.5% coupon, 20% conversion premium, 3.55% yield and premium redemption at 116.372%.
Both of the former deals are trading slightly above par, with Macronix bid at 101% and SPIL at 101.25% at the close of Monday's trading in Asia.
Convertible specialists say that underlying assumptions for Ambit include a higher credit spread of 400bp over Libor, versus 375bp for Macronix and 325bp for SPIL. There is also no borrow in the stock and a zero cash dividend yield - any dividend paid by the company will be fully adjusted in the conversion price. The bond floor ranges from 90.93% to 92.05%.
Having closed at NT$161 yesterday, Ambit is flat to the year and has underperformed the TWSE Index. As one analysts comments, "The company hasn't performed as well as it should this year because there have been questions about cost cutting to build market share in Japan and the loss of the ADSL contract with Chunghwa Telecom, which expires during the first quarter."
But, as a second adds, "The company has a number of short-term issues which have temporarily undermined its share price, but it's diversifying its client base and positioning itself for the take-off of broadband internet usage in Europe and the US."
Ambit is a market leader in ADSL (asymmetric digital subscriber line) internet usage, with a 36% global market share. According to local analysts, this contributed 39% of sales during 2001, with modem modules a further 35%, power modules about 10% and cable modems about 2%.
Analysts conclude that while its ADSL shipments may remain flat to 2001's 3.15 million total, the company will be one of the chief beneficiaries from the growth of the WLAN sector (wireless) and cable modem sector, as PCs, STBs (set top boxes) and game consoles are integrated into cable modems.
