A slightly increased offering for the Taiwanese large screen flat panel display manufacturer was priced last week at the mid-point of its indicative terms, with heavy interest reported from hedge funds. What was initially a $70 million transaction with a $10 million greeenshoe, was increased to $85 million and priced at par with a 0.5% coupon, conversion price of NT$24, representing an 8% premium to a three day average and a yield-to-put of 75bp over Treasuries.
The five year issue also has par redemption and is callable after six months subject to a 130% hurdle. The deal had been pre-marketed on a coupon range of 0.5% to 1%, conversion premium of 5% to 10% and yield to par of 50bp to 100bp over Treasuries.
The deal marks the company's first international offering and was said to have appealed heavily to hedge funds, seeking to play its cheap volatility. With historic volatility of 50%, the issue was pried on an implied volatility level of 15%. Fixed income funds were also said to have been attracted to its high bond floor of 94 and asset swap level of 250bp over Libor at the mid rate. In the loan markets, bankers say that the company is able to raise funds on a five year maturity at about 70bp over Libor.
By investor type, bankers report that hedge funds took about 50% of paper, with fixed income funds on 20% and equity investors 30%. By geography, a 60%/40% split was recorded between Europe and Asia, with no US distribution.
One of the most unusual aspects of the transaction was its extremely short call, a feature inserted at the request of the company, which is said to believe that its stock price could, "shoot back up at any time." Convertible specialists note that the structural twist was popular in the US last year, with a number of deals incorporating a 'make all call' feature, which meant that they could be called at any point.
"Outright investors don't like this, however," one banker comments. "They're not keen on puttin in a lot of credit work and then suddenly seeing the deal called away from them. This kind of structure doesn't give them an opportunity to ride the deal and they don't like losing exposure to a stock, which they might be restricted from buying in anything other than equity-linked format."
Chunghwa Picture Tubes is Taiwan's third largest by market capitalization on the OTC market and was first listed in March 2000 at NT$42 per share. To the end of the year, prices sloped downwards to a low of NT$18.7 on December 28. So far this yea,r they have climbed about 14%, to close Friday at NT$21.7. The convertible was said by banks to be bid at par.
