Having held a mandate from the IC designer since September 2000, lead managers Deutsche Bank and Merrill Lynch moved quickly to launch and close a deal within the space of 10 hours yesterday (Thursday). After a few weeks of intensive credit marketing, however, the deal had been well flagged and attracted strong demand, with books closing seven times oversubscribed.
Final terms are very similar to those achieved by Siliconware Precision Industries (SPIL), which closed a $175 million convertible via Morgan Stanley nearly two weeks ago. In particular, they appear to show that a two-and-a-year put is the sweet spot of the market at the moment.
Having seen many of their rolling put convertibles called by investors, Taiwanese issuers have been keen to push out to three years if it makes economic sense. So far, only Premier Image has scored an unequivocal success in this regard with an ING Barings-led deal last September. Ritek Corp also managed to get a three-year put earlier this week, but at the expense of a 6.29% yield.
Bankers say that the combination of a relatively steep yield curve between two and three years and investor resistance at the outer end makes two-and-a-half years more realistic.
Consequently Macronix priced a $150 million five-year deal with a two-and-a-half year put at a price of 107.845% to yield 3.55% or 25bp over Treasuries. With a 0.5% coupon and 20% premium to a spot price of NT$26.1, the deal also has hard no call for three-years and thereafter subject to a 130% trigger. Redemption is at 116.372%.
Alongside the leads, co-managers were Citibank Taipei, China Development Bank and JPMorgan.
At these pricing levels, the deal has a bond floor of 90.5%, theoretical value of 104.5% and implied volatility of 29%. This is based on underlying assumptions comprising a credit spread of 375bp over Libor, zero cash dividend yield, 5% stock borrow cost and 40% volatility. Historic volatility is 70%.
Non syndicate bankers highlighted the low bond floor which appears aggressive given that there is very little borrow available in the stock, whose ADR trades about $500,000 a day. "We believe that some accounts were able to get borrow and because the deal was quite small, it wouldn't have been too difficult to cover the book," says one observer. "However, to get huge blow-outs, issuers will have to give investors a little bit more protection than this deal does."
A total of 180 accounts are said to have participated, with a geographical split which saw about 65% go to Europe, 20% to Asia and 15% to the US.
In terms of pricing benchmarks, the nearest comparison is SPIL. The IC packager has a lower implied rating of BB- compared to a BB rating for Macronix, but was able to secure a tighter yield of 2.25%. This has partly been attributed to first mover advantage and partly to a more liquid ADR.
In terms of the conversion premium, Macronix has come out on top at a time when investors are trying to push premiums down on concern that the Taiwanese tech rally is nearing its peak. But while Macronix's share price has performed well since an NT$16 low last September, it has underperformed the index so far this year, trading down 2.97% against an overall rise of 5.781%.
Pricing the deal yesterday was also helped by the performance of the TWSE Index, which climbed 1% to 5,872.14 following a 4.2% rise of the Philadelphia Semiconductor Index the day before.
Earlier this week, Acer Inc sold down a further 2.5% stake in Benq Corp (formerly known as Acer Communications & Multimedia). Again led by Nomura, the group sold seven million GDS units raising a total of $57.6 million.
This adds to proceeds of $74.68 million from the previous deal a week before, which comprised a 10 million GDS sale. Pricing on both occasions came at a 4% discount to spot, but the share price has risen since the first deal was priced against an NT54.5 close, with pricing this time round coming off an NT$60 close.
Acer's stake in the company falls to 22.4% as a result of the new deal, much of which was said to have been placed with accounts which had also participated in the first.
