In tandem with each new slide in domestic sentiment, international investors have become increasingly more hostile to even the largest prospective equity issuers from the Island Republic.
Of the four companies active in the market this week, only one, Advanced Semiconductor Engineering (ASE) has achieved its stated objective and become the third Taiwanese company to list on the New York Stock Exchange (NYSE). A second company, IC designer Sunplus pulled its debut GDR hours before pricing on Thursday, while LCD manufacturer Wintek pushed back roadshows which were supposed to start on the same day. Meanwhile, memory chip manufacturer Macronix, the first Taiwanese company to list on Nasdaq, is taking a wait and see approach to launch after conducting eight days of pre-marketing for a new $400 million ADR.
ASE wraps up NYSE listing
For many market observers, it was a little ironic that ASE, one of the least favoured companies in the Taiwanese pipeline, should be able to pull off a $150 million ADR and GDR exchange this Monday. With Goldman Sachs as lead manager, the world's second largest computer chip packager sold 20 million ADR's at $7 per unit. Representing a 6% discount to a spot price of NT$46.7, each ADR equals five common shares.
Joint lead manager was Morgan Stanley Dean Witter, with Barits Securities, Deutsche Bank and UBS Warburg completing the syndicate.
Simultaneous to the share sale, the company also exchanged 16 million GDR units of an outstanding 106 million unit float for ADR's, bringing the latter float up to the $262 million mark. At the time of pricing, the company's GDRs were trading at $7.575, a 2% premium to spot, down from 10% to 15% levels before the market rout at the beginning of the year. One GDR also equals five common shares.
Bankers comment that in the face of extremely difficult market conditions, the company was able to do a good job differentiating itself with investors and was consequently able to attract an order book of about 30 to 40 accounts. Of this number, about 50% represented Asian investors, with US investors accounting for a further 30% and Europe 20%.
Outside observers, however, have been a little sceptical where paper was actually placed, claiming to have found few accounts which submitted orders. As one Asian fund manager comments, "There is a going to be a shake-out in the industry which is facing short-term oversupply and pricing pressures. The last industry cycle saw high profit margins, but these have been eroded by the entrance of many new players. We were not that interested in the issue."
An industry analyst further comments, "If you want to buy into the semiconductor cycle, a packaging company is not a good way to get in. There are lower margins these days and the industry is very labour intensive. ASE will also lose some of its technological advantages after its moves part of its operations to China."
Some observers, on the other hand, conclude that the company should be applauded for being able to complete any share sale at all. Alongside further downward pressure on the domestic bourse, ASE also had to contend with a massive sell-off in the semiconductor sector one business day prior to pricing. Intel Corp's announcement the previous Friday that its third quarter sales would be below forecasts, led its own share price to plunge 22% and pushed the Philadelphia Semiconductor Index down a further 4.9% from 926.53 to 880.36.
Adding to the negative backdrop, the recent ADR offering of sister company ASE Test has also fared poorly in the secondary market. In mid July, the company raised $240 million from an offering that was priced at $30, flat to outstanding units. Since then, the counter has slipped to $21.875. ASE itself closed Thursday in Taiwan at NT$44.2 per share, down 48.10% on the year, while the ADR is still hovering just below issue price at $6.8125.
A dark day for Sunplus
A debut $175 million GDR offering for Taiwan's largest consumer IC design company, Sunplus, was pulled back at lunchtime on its pricing day yesterday (Thursday) by lead manager UBS Warburg. Having hoped to offer 17. 5 million units on a ratio of two shares per unit, the company was forced to concede defeat after investors demanded pricing outside the 0% to 10% discount range.
Such an outcome was hardly surprising given that the Weighted Index closed the same day at an 18 month low, foreign investors recorded their highest daily net sale of local stock in five months and the Finance Minister threatened to resign if no other scapegoat for the market's decline can be found.
But it must have been particularly disappointing to a company which has been consistently favoured by analysts and investors alike. As Jupiter Asset Management's Vaughn Chang put its, "Sunplus is one of the best IC design houses in Taiwan. It is an extremely well managed company and well positioned in terms of the way it is trying to diversify into the communications field."
And as Prudential Bache analyst Abraham Leu adds, "The management of this company is good, it's product porfolio is good and it's design capabilities are good."
One of the main factors originally thought likely to dampen enthusiasm for the sale was the fact that it's stock price had run up over 53% during the course of the year, hitting a high of NT$192 on August 21. Since roadshows for the GDR began, however, the counter has fallen to a current level of NT$155, well below analysts' target price around the mid NT$170 level.
Wintek and Macronix take their time
Similar to Sunplus, Asian bankers believe it highly unlikely that LCD manufacturer Wintek will proceed further with its debut $120 million GDR. ABN AMRO is lead manager of a 40 million share deal that should have started roadshows yesterday.
Bankers say that pre-marketing will now continue for a few more days before a final decision is reached.
For Macronix, which filed for a 25 million ADR issue, it is a case of waiting to see if sentiment towards the semiconductor sector improves over the coming week. Led by Deutsche Bank and Merrill Lynch, the company has seen its ADR price slip from the $18 level a week ago to a current trading price of $15.875. At these levels, the company would raise $396 million, nearly $100 million less than it had initially been hoping for.
