Despite being launched less than two weeks after a $400 million issue for Chinatrust, a $200 million convertible for SinoPac appeared to enjoy a relatively smooth ride yesterday (Monday). The UBS Warburg-led deal never fell below par after the announcement of terms and opened secondary market trading at London's close around the par-and-a-half level.
Concerns that investors cannot absorb such a huge wash of Taiwanese financial holding company paper seem to be receding slightly. But the key to straightforward execution was the stable secondary trading pattern of the SinoPac's four predecessors and likelihood that it is probably the last in the immediate pipeline. Its most immediate predecessor, Chinatrust, also provided a very clear pricing benchmark, and in sensibly opting to offer investors a slight new issue premium to it, SinoPac attracted a wide order book with just over 100 accounts.
Having set out with a smaller than expected deal size than the $350 million initially envisaged by the market, the book closed three-and-a-half-times covered after an accelerated bookbuild between Asia and London's close. There were said to be only two 10% orders and a strong weighting towards Europe, which took 85% of the deal compared to 15% in Asia.
As one non-syndicate banker concludes, "This deal was sensibly priced and the issuer took the right attitude from the outset. There's no reason why more of these deals can't perform. They just need to be priced correctly. Globally, convertible funds haven't been doing that well and in making the decision where to re-allocate funds, a number will have looked at a deal like this and decided to invest in a cheap bond, which has been priced close to the bottom."
Terms comprise a five-year final maturity, zero coupon and 21% conversion premium to a spot close of NT$14.6. With a premium redemption structure at 114.115%, the deal has three-year call and put options, with the latter priced at 102% to yield 4.45%. Joint leads were Deutsche Bank and Morgan Stanley, with National Securities and Masterlink completing the syndicate. There is also a $30 million greenshoe.
Underlying assumptions include a bond floor of 96.5% and implied volatility of 18.5%. This is based on a credit spread of 180bp over Libor, zero dividend yield, 5% stock borrow cost and 30% volatility assumption.
With a Baa3 rating from Moody's, SinoPac is rated one notch lower than Chinatrust and has, therefore, priced slightly wider. At yesterday's close in London, the Baa2/BBB- rated deal was being quoted at 101.5% on a bond floor of 96.2% and yield of 4.2%.
Chinatrust had a much more highly concentrated order book than SinoPac (40 accounts) and some bankers suggest that the latter appealed to a wider audience because hedge funds were able to get their hands on synthetic borrow as the stock is widely held by foreign institutions. Others, however, say this was not the case and instead report dissatisfaction in some quarters about the heavy dilution on the stock.
On full conversion, the new deal will enlarge the current equity base by 12%. It represents 27 trading days for a stock that has a small market capitalization of roughly $1.5 billion, but a large free float (70%). Since its establishment in 1992 by veteran ex-Citibanker Paul Lo, SinoPac has been a perennial favourite of foreign investors who now own more than 30% of the stock.
"SinoPac really is the darling of institutional accounts," says one credit analyst. "Investors have been extremely impressed with the way it has never sacrificed loan quality in order to grow.
"Management are streets ahead of the competition," he adds. "They've been out there promoting the bank's equity story for years and they are very effective. SinoPac is everything an Asian bank should be - well managed and innovative, but fundamentally risk averse."
Following the acquisition and absorption of National Securites, the group now has a platform to cross sell and analysts say it has conceived an ambitious expansion plan both domestically and abroad. Where the latter is concerned, the bank wants to leverage its ownership of California's Far East National Bank to create a pan Asian entity serving West Coast America's large Chinese population.
Similar to its domestic competitor Fubon, which is also modeled on Citibank, SinoPac has further said that it wants to create a Greater China insurance venture in association with a foreign partner.
Domestically, SinoPac has a 2.8% share of the deposit market and Moody's comments that its rating is constrained by, "the challenges SinoPac group still faces in securing its somewhat nascent market position in the intensely competitive environment of Taiwan's financial services sector."
On every key ratio, however, the bank beats the market average and in most instances sits at the top of the pack. In terms of ROE, for example, SinoPac reported a 9% level at 2001 Financial Year End against an 8.3% level for Fubon and 7.7% sector average. Credit analysts also say that a 10.47% CAR is fairly good by Taiwanese standards, with Chinatrust marginally lower at 10.3%.
