The world's biggest footwear supplier, Pou Chen Corp (PCC), completed an extremely popular $260 million convertible yesterday (Thursday) via Citigroup and Merrill Lynch. The deal was 20 times covered by the time books were closed at 5pm Asian time, having been launched straight after the stock's close in Taiwan a few hours earlier.
Terms comprised a five-year maturity with an issue price of par, zero coupon and redemption at 99.501%. There is a put after year three at 99.80% to give a yield to maturity of minus 0.1%.
The deal was marketed on a conversion premium range of 12.5% to 22.5% over the stock's NT$38.6 close and was priced at the very top of the range. There is also hard no call for two years subject to a 130% hurdle and a number of re-set options, all at the issuer's discretion.
There is an annual re-set with an 80% floor and a special re-set within 30 days prior to the put and maturity date, equal to approximately 92% of the lowest of PCC's average share price for 10, 15 and 20 trading days. This conversion price is effective for seven business days and is not subject to the 80% re-set floor.
There is also a $40 million greenshoe and fees total 1.25%.
Underlying assumptions comprised a bond floor of 92.28%, implied volatility of 31.5% and theoretical value of 101.9%. This is based on a credit spread of 170bp over Libor, 1.13% dividend yield, 5% borrow cost and 36% volatility assumption. Pou Chen is not rated, but observers comment that it is an implied BBB- credit.
The most striking aspect of the deal is the low bond floor for what is only a two year maturity and a stock, which has no borrow. The average bond floor from Taiwan this year has been more like 95%.
Nevertheless, 250 accounts participated and the geographical split has a much higher Asian weighting than is usually the case. Approximately 43% was placed in Asia, 37% in Europe and 20% with offshore US.
Accounts are said to have been attracted to the rarity of the Pou Chen name, which offers some diversity from tech and FIG. The group has one outstanding convertible issued back in 1999 and now extremely illiquid.
The $125 million deal is also one of the most highly priced issues in the Taiwanese universe and was bid yesterday at 147%.
Year-to-date Pou Chen has risen 49.97% though it is marginally off a high last week of NT$39.5. The company owns 49.55% of Hong Kong listed shoe manufacturer Yue Yuen Industrial. However, underlining just how difficult it is for investors to completely escape the Taiwanese TFT-LCD sector, proceeds are being used to set up a flat screen assembly plant.
