The world's largest listed TFT-LCD manufacturer returned to the ADR market after New York's close on Thursday, raising $480 million from a 30 million unit deal.
Under the lead of global co-ordinator Goldman Sachs and joint bookrunner Citigroup, the offering was priced at $16 per unit. This represented a 1.8% premium to the stock's close in Taiwan on Thursday and a 4.6% discount to the ADR close the same day. There is a ratio of 10 shares per GDR and a greenshoe of 2.5 million units.
Back in February, AUO received board approval to issue 500 million shares, but went on to file for 300 million. It has, therefore, issued the full amount, although net proceeds are considerably less than originally envisaged since the stock price has performed badly in the interim period.
Having hit a high of NT$75.71 in mid-April, the share price has been exceptionally volatile since then. However, the underlying trend has been progressively downwards and the stock tested new lows around the NT$49.6 mark last Wednesday, before bouncing back 6.85% the very next day, closing limit up at NT$53.
This sudden share spike, prompted by bullish forward looking comments from rival manufacturer Chunghwa Picture Tubes, prompted AUO to take advantage of a market window while it could.
In doing so, it was aided by the performance of its ADR, which has been far stronger than the domestic share price over the past couple of months. Earlier this year, there was virtually no premium between the two. Since mid-April, the ADR has traded at a premium of up to 23%, before contracting back to 14.75% by the middle of last week.
By the time news of the ADR offering officially broke, it had contracted to 9%. The deal was launched after Taiwan's close on Thursday and closed after New York's close the same day. During this period, the ADR contracted a further 1.8% from Wednesday's $17.07 spot close to Thursday's $16.78 close.
Taking the one-day drop and new issue discount into consideration, the ADR deal was priced at a 6.4% discount on a net basis. This was a fairly impressive result compared to the kinds of pricing levels achieved by TSMC, which has a far longer trackrecord with investors.
Specialists say the semiconductor giant has averaged a 6% net discount over the past few years. Typically it achieves wafer thin pricing to its ADR spot close, but has to stomach a fairly hefty fall in the ADR price over the course of each one-day bookbuild as accounts get their shorts in place.
Last November, for example, $1.077 billion was raised in a deal that priced flat to the ADR's close after a 5.7% one-day trading fall. In July 2003, a deal was priced at a 0.67% discount to close following a 6% slide.
TSMC deals are also usually secondary offerings, which are immediately fungible, whereas AUO's two lines of stock will not become fungible for 10 days. "Normally, you'd be looking at a double digit discount for these types of deals," one observer comments.
The order book is said to have closed about 1.6 times covered, with participation by just over 100 investors and a 50/50 split between US and international accounts.
The new deal represents 7% of the enlarged share capital pre shoe.
Specialists say timing of a deal was propitious since AUO was able to take advantage of a share price spike and get into the market before the jumbo $1 billion plus IPO for LG Philips starts to distract investors' attention. Completion of the deal must also be a relief for AUO's larger Korean rival since it removes a technical overhang from the former's share price - the main valuation benchmark for the latter.
On Friday, AUO closed down 3.77% at NT$51.
