Hong Kong listed Techtronics Industries raised $140 million on Wednesday from a debut convertible led by ABN AMRO and HSBC. Terms were aggressive and the deal consequently priced at the wide end of the range, with books marginally oversubscribed.
Terms comprised a five-year final maturity and a par in par out structure with a 1.5% coupon and three-year put option. The conversion premium was fixed at 38% to the stock's spot close of HK$12 on Wednesday and there is also a call option after three years with a 130% trigger.
Marketed terms comprised a premium of 38% to 43% and coupon of 1% to 1.5%.
Underlying assumptions comprise a bond floor of 90%, implied volatility of 35% and theoretical value of par. This is based on a credit spread of 115bp over Libor, 1.9% dividend yield, 3% stock borrow and 35% volatility assumption. Historical volatility is about 50%.
The order book is said to have closed about 1.4 times oversubscribed with participation by about 45 accounts. By geography the book split about 55% Europe, 20% Asia and 25% offshore US.
Specialists note a large number of accounts remain sitting on the sidelines, after being burnt earlier this year. However, backed by two to three lead orders, the deal generated enough momentum to clear on what is a high conversion premium for more bearish market conditions.
Year-to-date the stock is up 11.37% but has been fairly volatile and is currently trading at about 18 times 2004 earnings. Having started the year around the HK$11 mark, Techtronics peaked at HK$13.875 in early March, before tumbling below HK$10 in mid-May. On a one-year basis it is up 88.88%.
On full conversion, the new deal will represent about 5% of issued share capital.
Over the long-term a number of research houses view Techtronics as an interesting industrial play that fits an emerging pattern of a Chinese company, which is able to switch from OEM to ODM manufacturing, in the process hoovering up a number of international brands.
It manufactures a number of home improvement products and is best known for purchasing the Ryobi power tool brand. Its biggest market is the US, which accounted for 83% of 2003 revenue, but it is now targeting Europe, which accounted for 12% in 2003.
Company executives say they hope to close a number of acquisitions by the end of the year, which will expand the company's European capabilities and are looking at a couple of listed companies.
Net profit closed 2003 up 63% to HK$674 million ($86.4 million). The convertible closed its first day trading marginally down at 99.25%/99.75%.
