The continuing slide of the Weighted Index, the prospect of the government withdrawing its active market support and poor subscription levels to Chunghwa Telecom's domestic IPO, have raised doubts that many of the numerous international equity mandates from Taiwan will see the light of day before the end of the fourth quarter.
Hitting a 52 week low of 7,144.12 yesterday (Thursday), the dismal performance of the Weighted Index has formed an unappetising backdrop to the marketing efforts of companies currently in the middle of roadshow presentations. Premier Image Technology, scheduled to be priced tomorrow, will be followed by United Microelectronics Corp (UMC) on Monday and slightly further down the line, Advanced Semiconductor Engineering (ASE) on September 25, Sunplus on September 28 and Wintek, which is scheduled to begin roadshows on the same day.
Already Macronix, which was planning to submit its SEC filing for a roughly $500 million ADR in the middle of September, has decided to stand back and see how UMC fares before making a final decision whether to move forwards.
The first real indications of difficulties, however, are likely to be presented by Premier Image Technology, due to price at 7am San Francisco time today (Friday). Led by ING Barings, with ABN AMRO as co-lead and Credit Lyonnais, National Securities and Nomura as co-managers, the camera manufacturer is hoping to raise $80 million from its debut GDR.
The company is offering 25 million new shares and five million old shares on a discount range of 0% to 10% over an closing average of up to 30 days. Should the company price at the bottom end of the range, bankers say that this will equate to a roughly 20% discount to spot.
Lead bankers say that although the book is building slowly, they are still hopeful that the deal will be completed. Having transferred from Taiwan's OTC board at the end of last year, the company's share price has shown a remarkably resilient performance. Since the beginning of the month, for example, it has seen its shares rise from NT$78 to NT$87.5, a 12% increase compared to an 8.5% decline for the overall index.
"The company is quite small, it's GDR likely to be a little illiquid and investors have been a bit concerned about the surge in its share price," comments one banker.
Another adds, "We've been having difficulties convincing investors to touch anything from Taiwan. The only stocks they say they are remotely interested in are the big, liquid ADRs from the likes of UMC and Macronix."
UMC prices Monday
With Morgan Stanley Dean Witter as lead manager, foundry manufacturer UMC will close on Monday, raising roughly $1.28 billion based on pricing at a 15% premium to yesterday's closing share price of NT$76.5. Set to become the second Taiwanese company to list on the New York Stock Exchange (NYSE), UMC is offering 450 million shares on a one-for-five basis, equating to 90 million ADS units and a two million share greenshoe.
Fees are said to total 4%, with Morgan Stanley said to be receiving 50% of the total, followed by joint-lead Credit Suisse First Boston on 25% and co-leads ABN AMRO, Donaldson Lufkin & Jenrette (DLJ), ING Barings and Lehman Brothers on 5% each.
Both syndicate bankers and outside observers agree that the transaction is likely to be deemed a relative success given the market circumstances against which it has had to battle. Most also agree that the company was right to forge ahead with the offering and create an international investor base for its stock.
Having set out on an indicative price range at a premium of 10% to 20% to spot, consensus opinion suggests that final pricing will settle in the middle of the range. However, this marks something of a disappointment to those who believed that the company was initially hoping to price at between 20% and 30% to spot, much closer to the levels commanded by arch rival TSMC (Taiwan Semiconductor Manufacturing Company).
The latter is still trading at a premium of 47% over its domestic shares, only marginally down from its 50% average of the past three months. In terms of underlying share price, on the other hand, UMC has held its share price over the past week and is currently down 18.04% on the year, while TSMC which was trading down by 3.81% last Thursday, is now down 8.02% on the year.
"The book is building well," one banker reports. "There are a number of anchor orders, the shadow order book is extremely large and we are optimistic that these will translate into hard orders over the next couple of days."
"This is a company that investors are already very familiar with and they believe that it has a lot of value at these levels."
ASE begins roadshows
Behind UMC, Goldman Sachs began roadshows on Wednesday for ASE, which is hoping to become the third Taiwanese company to secure an NYSE-listing. Having commenced presentations in Singapore, the team moved to Hong Kong yesterday and will price finally in New York on Monday September 25.
Set to raise about $170 million, the world's second largest computer chip packager is offering 20 million units, with one ADS equivalent to five common shares. Although the company completed an old share issue last year (also via Goldman), bankers say that this is the first time the company has come to the international markets to raise new cash in five years.
A number of observers, however, have expressed concerns that the timing is not right. "This is one deal we feel quite nervous about," comments one equity capital markets head.
Closing yesterday at NT$54, the company's share price has slid 36.6% year-to-date, down from a NT$90 high in January. Trading at 18 times 2001 earnings in line with its sector average, the company has historically commanded a slight premium, however.
The company, on the other hand, remains keen to present its story to an international audience. "Like all Taiwanese issuers, ASE wants to have access to the US market and forging ahead with this deal marks a strategic decision on their part," says one banker.
"They want to promote the fact that the packaging industry has reached a watershed and is undergoing dramatic changes which investors have not yet begun to focus on," he continues. "As well as being large, these companies need to become much more agile as technology and the ability to support large R&D teams, becomes more of a key driver of growth."
Alongside the lead, Morgan Stanley Dean Witter is acting as joint-lead, with Barits Securities, Deutsche Bank and UBS Warburg as co-leads.
Sunplus and Wintek line up
Next in the pipeline is IC designer Sunplus which begins roadshows for a $200 million GDR on Monday. With UBS Warburg as lead manager, the company is marketing a 17.5 million unit sale, with two shares per unit. There is a 50/50 split between old and new shares and a 2.5 million unit greenshoe.
Barits Securities and ING Barings are senior co-leads, with SG Securities as co-lead and Capital Securities, Fuh-Hwa Securities and Taiwan International Securities as co-managers.
Behind Sunplus, LCD (liquid crystal display) designer and manufacturer Wintek is set to embark on its first international equity offering. Pre-marketing of a $100 million to $150 million GDR is scheduled to begin next Friday, with ABN AMRO as lead manager and Credit Lyonnais, Jardine Fleming and Nomura as co-leads. Trading on a current share price of NT$110.5, the company has seen its share price rise 35.57% year-to-date.
Chunghwa fails to connect with retail investors
But behind the whole pipeline looms the large and darkening shadow of Chunghwa Telecom. Although the government is still hopeful of raising up to $4 billion from an ADR sale by the end of the year, the odds of being able to do reduced slightly yesterday. After offering 1.3 billion shares to retail investors, the company was only able to achieve a 38% subscription rate at its NT$104 offer price.
Some bankers, however, believe that the domestic IPO has given little indication of how the deal will be received by international investors. "The low subscription rate is not very surprising at all given that domestic investors are not that familiar with the telecoms sector," says one banker. "This was always a deal that would need to be sold into the international markets."
"If you look at the example of Petrochina," he explains, "it's IPO didn't stir retail investors' interest one little bit. But look how it has performed since then."
Local analysts conclude that Taiwan Cellular Corp (TCC) has, by contrast, taken a more a skilful approach. In planning to list only a small percentage of its shares domestically, the company is hoping that the real price momentum will be generated overseas where it hopes to complete an ADR before year end as well.
Salomon Smith Barney is strongly tipped to have secured the mandate on the back of Citigroup's joint venture with the Fubon group, one of TCC's major shareholders. Its main competitor for the mandate, UBS Warburg, now looks to be out of the running after securing one of Chunghwa's three bookrunner's slots alongside Goldman Sachs and Merrill Lynch.
