Taiwan's smallest TFT-LCD manufacturer priced a sizeable $270 million convertible yesterday (Thursday) via its house bank Lehman Brothers. Market conditions were not quite so favourable as they had been for Nan Ya Techology a day earlier, however, with the US market down overnight and the former deal also quoted down a point during secondary market trading.
Terms for QDI's deal comprised a five-year final maturity, issue price of par, zero coupon and redemption at 99.75%. There is a first put option after 30 months at 99.875% and a second at 45 months at 99.825% to yield minus 0.5%. The conversion premium was fixed at the wide end of a 30% to 38% range and settled at 30% to the stock's NT$17.1 close. There is also a conversion price re-set after 12 months with an 80% floor subject to the new SFC guidelines and a call option after 30 months with a 125% hurdle.
Underlying assumptions show a bond floor of 88.5% and theoretical value of 100.5%. This is based on a credit spread of 225bp over Libor, zero dividend, 5% borrow cost and volatility of 35%. Like the $90 million convertible for King Yuan Electronics that Lehman priced a couple of weeks ago, the bond floor is aggressive in a reflection of a long put option.
Both the recent Asustek and Nan Ya deals had two-year puts rather than two-and-a-half years and bond floors around the 92.5% mark. Terms also show how strong the underlying market is compared to a year ago when QDI launched its last convertible. Since then it has also completed a debut GDR, making hedging of a convertible slightly easier.
Back in January 2003, QDI could only get away with a rolling put structure and priced a $180 million deal with a par in par out structure and a 19% conversion premium to a then share price of NT$13.9. The credit spread assumption was the same in 2003 as it is in 2004 for a one-and-a-half year shorter maturity, the bond floor nearly 10 points higher and there was also a six month re-set with an 80% floor. This deal is now trading around the 115% level.
Observers say the new deal closed about three times covered with participation from just over 100 accounts.
