Like last weekÆs offer from Giga-Byte Technology, WalsinÆs $200 million CB attracted strong demand partly because of the scarcity of convertibles from Taiwan this year. However, the strong performance on Nasdaq on Monday, when the Composite Index rallied 1.5% also provided the right backdrop for the issue.
ôThis trade is all about timing and today (Tuesday) was a big liquidity day, which allowed the company to get away with a pretty aggressively priced deal with a low bond floor,ö one source says. He notes that the issuer had been ready to launch for some time, but had been waiting for the right day in order to fulfil its ambition of achieving a conversion price close to NT$20.
The stock reached an all-time high of NT$18.60 in the middle of last month, but has pulled back slightly since to TuesdayÆs (November 7) close of NT$17.05. At that price, the shares are still up 55% year-to-date, however.
ôTo get zero percent money for two years after a strong run-up in the share price is pretty good value, although the volatility has had a lift recently,ö the source adds.
Walsin, a manufacturer of electric wires, conductor cables and transmission lines, gained 0.9% before the placement Tuesday, which was in line with the rise in the Taiwan Stock Exchange benchmark index.
The Citigroup-led offering, which is only the fifth by a Taiwanese issuer this year, has a five-year maturity with a two-year put. The bonds, which will pay no coupon, were issued at par and will also be redeemed or put back to the issuer at par for a 0% yield to put or maturity. There is an issuer call after two years, subject to a 130% hurdle to help speed up the conversion.
Not surprisingly given the rather aggressive pricing, there was quite a bit of price sensitivity in the book and the conversion premium was fixed at the bottom of the 17% to 22% marketing range. Based on TuesdayÆs closing price, this gives a conversion price of NT$19.95.
The premium was higher than Giga-ByteÆs 14.9% even though the Walsin trade will be at least double the size.
Demand was strong at the final price, however, with the $200 million base deal size close to five times covered, according to the source. There is a greenshoe that could boost the offering to $250 million depending on the demand in the secondary market. Based on the initial size, the deal accounts for about 15% of the companyÆs market capitalisation.
More that 80 investors bought into the deal with good support from Asia-based CB investors in particular. About half the offering ended up in this region, while the remainder was split fairly evenly between Europe and offshore US investors û perhaps with a slight bias for the former.
The underlying assumptions included a credit spread of 130 basis points over US Libor, a full dividend protection (like many other Taiwan technology companies Walsin doesnÆt currently pay a dividend) and a stock borrow cost of 5%. Some investors were said to have been using a low stock borrow of about 2.5% in their valuation models. Citigroup provided some asset swaps on demand.
This gave a bond floor of 88% and an implied volatility of 30.5%, which was slightly below the historic volatility of about 35%.
According to the term sheet, the money will be used for the procurement of raw materials overseas. The company uses a lot of steel for its cables, with copper and aluminium alloy also featuring prominently.
Giga-Byte, which is the worldÆs fourth largest manufacturer of motherboards for PCs, notebooks and mobile phones among other things, raised $100 million through Nomura on November 2.
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