Taiwan's Tatung prices GDRs at 15.2% discount

Taiwan conglomerate Tatung Co has raised $197.5 million from the sale of global depositary receipts, which it will use to buy raw materials and for long-term equity investments, including its Tatung InfoComm subsidiary. TIC is the first operator in Taiwan to have launched 4G WiMax services, which the company says will provide better functionality at a lower cost than the more widely available 3.5G technology.

Tatung, which among other things makes digital consumer electronics, home appliances and displays and is active in real estate, is loss-making. And one of its subsidiaries, Chunghwa Picture Tubes, was in the market two months ago to fill a hole in its accounts, which may have contributed to the somewhat tepid demand from investors. The company had the option of pricing the deal at a discount of up to 20% versus the market price and, after the Taiwan market closed on Tuesday, the third and final day of marketing, bookrunners told investors that the discount would be between 7.3% and 15.2%.  

Market rumours on Tuesday suggested that demand may not be enough even at this wide a discount and that the deal may have to be called off. However, after keeping the books open overnight the deal did come together. It was eventually priced at the wide end of the indicated discount range, 15.2% below Tuesday's closing price of NT$7.55. This translated into a price of $3.95 per GDR, or a corresponding price of NT$6.40 per common share.

The company sold 50 million GDRs, which accounted for 22% of the outstanding share capital. Each GDR is equal to 20 common shares.

According to a source, the deal was supported by a couple of long-only anchor investors, who were very important for the success of the transaction. Some long-only existing investors also participated in "meaningful sizes" but the rest of the order book was made up primarily of Asia-based hedge funds. The deal was open to onshore US investors, but the management roadshow only went to Hong Kong and Singapore, which may explain the concentration of orders in Asia.

A key reason why investors are interested in the company is that it owns 1.54 million square metres of premium land bank, of which more than 90% is still available for future development. At the moment, almost all of its land is zoned as industrial areas, with only a small portion zoned for residential or commercial development. However, the company is planning to unlock value by selectively re-zoning properties in its existing land bank and is also working with local authorities to improve plot ratios of sites in prime areas. According to the GDR offering circular, Tatung intends to "continue to develop high value-added projects, undertake on-going asset enhancements and increase rental yields on [its] properties."

The company currently has five ongoing land development projects in Taipei City and Taipei County. Construction has already started at two of the projects, both of which are residential.

The GDRs traded up in the secondary market on Wednesday, suggesting not all the demand was satisfied through the primary market. The share price had also held up quite well during the marketing, with a 5% drop on the first two days, in line with weak markets globally, followed by a 2.1% gain on Tuesday.

Deutsche Bank and UBS were joint global coordinators, as well as joint bookrunners together with Citi.