Sino-American raises $177 million from GDR sale

Sino-American Silicon Products (SAS), a Taiwan manufacturer of wafers and ingots for use in the production of solar cells among other things, has raised $177.2 million from the sale of global depositary receipts after fixing the price at a 10% discount versus the three-day volume-weighted average price (VWAP). Ten percent is the maximum discount allowed, although the bookrunners can choose to price over the five-day VWAP, the three-day VWAP or the latest close, which gives them a little bit of flexibility in case the underlying stock moves around a lot.

Indeed, SAS’s common shares that are listed on Taiwan’s over-the-counter GreTai market, hit a volatility rate of 75% during the roadshow, and by telling investors on the last day of bookbuilding that the fully marketed deal would price over the three-day VWAP, the bookrunners were able to create more certainty about the final price (the three-day VWAP is calculated based on the trading during the three days ending the day before pricing – in this case Monday through Wednesday last week). The books closed on Thursday and the final price was announced early Friday.

The stock had also risen 28% in the three weeks before the start of the roadshow last Monday – it hit a record high of NT$112.50 on August 25 – and was up 77% from the most recent trough in late May, which would have made it quite difficult to reduce the discount below 10%.

At the same time, though, demand was strong enough for SAS to make use of the entire upsize option, increasing the deal by 27% to 61 million GDRs from 48 million. Given the need for capital and the fact that the company didn’t want to have to return to the market too soon, being able to increase the deal was viewed as more important than a slightly higher price, noted a source.

A larger size also fit the second purpose of this deal, which was to broaden the shareholder base to include more foreign investors.

According to a source, the bulk of the demand came from Asia, but some European funds focusing on renewable and sustainable energy also participated in the trade, which was covered on the second day of the four-day roadshow. Solar power plays have had a revival among European investors recently on the back of positive industry news, including the extension of subsidies to the solar power industry in Germany for another quarter. However, subsidy cuts are actually quite good for the Asian solar power companies as the cuts refocus the discussion on cost – something which will make the low-cost producers in this part of the world relatively more attractive than their peers in Europe or the US.

Over all, there was good demand from long-only investors and these were also prioritised by the issuer, leaving some investors with chunky allocations. The final order book contained close to 60 orders.

The volatility in the stock last week was most likely caused by local Taiwan investors wanting to make sure they didn’t miss out on any potential upside once it became clear that the deal was doing well. The share price fell 5.6% during the first two days of bookbuilding, closing at a low of NT$100.50 on Tuesday, but then rallied 7% on Wednesday to NT$107.50 before easing back slightly on Thursday to NT$106. The stock closed unchanged on Friday, supported, no doubt, by the skewed allocations.

The final price was fixed at $2.9048 per GDR, which was the equivalent of NT$93 per common share. Each GDR is equal to one common share and the three-day VWAP worked out at roughly NT$103.33. All of the underlying shares were new and the deal accounted for 19% of the existing share capital. Nomura acted as the sole bookrunner.

SAS makes three different kinds of wafers, but its largest business, accounting for approximately two-thirds of the revenues, is the wafers it makes for the solar cell industry. This is also where analysts are expecting most of the near-term growth to come from as SAS plans to ramp-up its solar wafer manufacturing capacity to 800MW per year by the end of this year, from 700MW as of the end of June. The company is also eyeing a potential expansion to become more of an integrated player in the solar power industry – perhaps by expanding into the manufacturing of solar cells -- and some analysts believe part of the GDR proceeds will go towards this, even though officially the money will be used to buy raw materials.

Aside from wafers for the solar power industry, SAS also makes wafers for specialty semiconductors, which makes up close to one-third of revenues and is a bread and butter kind of business that ensures a steady cashflow. These wafers are used in the manufacturing of automotive power devices among other things. Its third business line is the production of high-quality sapphire wafers for use in the production of LED (light-emitting diodes) products, which started commercial operation in 2007 and still accounts for less than 10% of revenues.

This is the largest GDR issued out of Taiwan this year and only the second one to exceed $50 million after Wintek, a manufacturer of liquid crystal display (LCD) screens for mobile phones, digital cameras and MP3 players, raised $122 million from a GDR sale in April.