Wintek brings first Taiwan GDR this year

Wintek, which makes small- and medium-size liquid crystal display (LCD) screens for mobile phones, digital cameras and MP3 players among other things, on Monday evening sold $122.1 million worth of global depositary receipts (GDR), removing an overhang that appears to have hampered its share price in recent weeks.

With that overhang now gone, the company should be able to benefit in full from the positive news surrounding Apple's iPhone and the new iPad for which it is a key supplier of touch panels -- or so the investors participating in the transaction seem to believe.

According to a source, the deal was 1.5 times covered in the first hour and, even though it was a GDR, a lot of local funds submitted orders; this is typically a sign that they expect the share price to rise after the deal.

The deal was flagged weeks ago when the company received regulatory approval for a GDR issue on March 30 and sole bookrunner J.P. Morgan has been doing quite a bit of investor education since then. To avoid a sharp sell-off in the Taiwan-listed shares just before the deal, J.P. Morgan chose not to do a fully marketed transaction, however, and didn't tell investors exactly when the deal would happen. In the end it was launched after the Taiwan market closed on Monday without any prior warning and was completed through an accelerated bookbuild the same night.

While Wintek's share price has been on a losing streak since the beginning of this month and lost 2% on the day, the Taiwan market has been on a gradual uptrend since mid-February, providing a positive backdrop for the transaction. Apple's recent earnings likely also helped to get investors interested in the deal.

In fact, the company said it will use the proceeds to expand its production capacity for touch panels.

Wintek offered 30 million GDRs, the maximum number that it had approval for. At the end of March it said it expected to sell between 24 million and 30 million GDRs, each corresponding to 5 million common shares listed in Taiwan. The deal accounted for 13.3% of the existing share capital.

The GDRs were offered at a price that corresponded to NT$25 to NT$26 per share, or a 3.7% to 7.4% discount to Monday's closing price of NT$27. They were priced at the mid-point, at NT$25.50, or $4.07 per GDR, resulting in a 5.4% discount.

The majority of the demand came from Asia and was made up of a mix of long-only and hedge funds. The deal was also said to have been supported by an anchor order from a long-only US fund with a presence in Asia. Overall, more than 30 investors had come into the transaction when it closed after about five-and-a-half hours of bookbuilding, the source said.

The share price fell just 2.6% yesterday, well below the 5.4% discount, suggesting investors may have been right about the removal of the overhang.

Wintek is the first Taiwan company to issue GDRs this year, and the fact that it was able to price at a discount of just over 5% indicates that, at least for small deals, it may not be a problem that the temporary widening of the maximum discount on follow-ons to 20% from 10% expired at the end of last year. Still, it will be interesting to see how this will work for larger transactions. The widening of the maximum discount was put in place by the regulators to ensure that Taiwanese companies would be able to raise equity capital during the financial crisis.

Bankers say there are currently a number of Taiwanese companies looking at issuing GDRs.