ABN AMRO successfully closed a $125 million convertible for Chunghwa Picture Tubes (CPT) at London's close yesterday (Wednesday).
For a little over six months, the flat panel and cathode ray tube manufacturer has been hoping to access the international equity markets with a $250 million convertible and roughly $400 million GDR. But after fruitlessly waiting for its share price to re-bound, the company took the decision to raise less funds than it originally hoped in return for securing funding for its 5G fab.
Yet after pre-marketing a $100 million offering with a highly defensive structure, the company was able to increase the final deal size by $25 million and there is also a 15% greenshoe.
With a five-year maturity, the deal was priced with a 0.25% coupon, 15% conversion premium to an NT$13.5 close and premium redemption at 117.59%. There is also a call option in year two subject to a 125% hurdle and two put options. The first falls after 14 months and was priced at 103.84%, while the second falls after three years and was priced at 110.19%. Yield to maturity is 3.5%, the tight end of a 3.5% to 4% pre-marketed range.
Underlying assumptions comprise a bond floor of roughly 97.3% and implied volatility of roughly 18%. Historic (100-day) volatility stands at 70%. These assumptions are based on a credit spread of 375bp over Libor and no stock borrow or dividend yield.
Observers say about 60 to 70 accounts participated and believe there was little investor overlap with CPT's previous two convertibles of January 2002 and February 2001, which were both syndicated out of Taipei by Citibank. Books were said to have closed just over three times covered at the revised issue size and by geography the book had a rough split that saw Europe take 65% (predominantly UK funds), the US 10% and Asia 25%.
Asset swap demand was said to have covered just over a third of the book, but because there are few asset swap lines for the credit, less than this amount was filled.
At 97.3%, the deal has a highly protective bond floor, although since some market participants were bidding the credit at 400bp over Libor, this would lower it a point or two.
Given that most of the year's Taiwan tech CB's were launched before May when share prices really started to plummet, investors have lost money on just about every single deal. With CPT, investors must now be hoping they have purchased a cheap equity option at the bottom of the cycle, which will give them a good entry point when it turns.
In a recent report, industry consultant DisplaySearch said that while notebook and LCD monitor shipments declined 3% during the second quarter, notebook and LCD panel shipments surged 8% and 10% respectively, causing a glut and significant price reductions throughout the third quarter.
However, it now foresees a turning point. "The large-area TFT-LCD surplus is expected to fall from a high of 12% in the third quarter to 3% in the fourth quarter, with lower prices driving demand for LCD monitors and LCD TVs," it commented.
