Asia Cement thinks small to seal CB at the third attempt

After two unsuccessful trials, it's third time lucky as the Taiwanese cement maker raises $215 million from a convertible debt issue by settling for a much smaller deal.

Taiwan-listed Asia Cement raised $215 million from its third convertible debt issue in eight years on Monday after substantially reducing its fundraising target despite a strong run in its share price.

The Taiwanese cement producer can breathe a sigh of relief now it has finally completed the convertible bond sale after two unsuccessful attempts. The company applied to the Taiwan Stock Exchange for a $400 million deal in both 2015 and 2017, but both deals did not materialise.

In March this year, Asia Cement made a new filing and said it hopes to raise $500 million – the single largest fundraiser in the company’s history. The company was bullish about the amount it could raise at that time because it was confident that it could put an end to the boardroom tussle around its Hong Kong-listed subsidiary that lasted for more than three years.

In 2015, Asia Cement ran into a nasty dispute with rival cement manufacturer Tianrui Cement over the control of Hong Kong-listed China Shanshui Cement. The dispute happened after Tianrui increased its shareholding in Shanshui to 28.2% from 10% within weeks and overtook Asia Cement as the company’s largest shareholder.

Tianrui then sought to oust Shanshui’s chairman Zhang Bin and install new board members, but was defeated at an extraordinary general meeting at the end of July.

It was not until May this year that Asia Cement was able to regain control by obtaining two board seats. The company said it plans to start restructuring Shanshui’s debt when the subsidiary’s operations return to normal at the end of the current financial year.


Asia Cement’s share price had soared by as much as 36% in three months this summer and provided an excellent backdrop for it to issue convertible securities. However, the company appeared to have missed the best window to print a deal as its shares started to fall since late August.

In any case, Asia Cement’s goal of raising more convertible debt was rebuffed by bond investors and it had to settle for an amount fairly close to last bond issue five years ago. The company printed a $220 million deal in 2013 and another $172.5 million issue in 2011

However, Asia Cement’s new deal should be considered a success from a secondary trading perspective given that nearly all new deals issued this year have traded below par.

China Conch Venture’s $500 million five-year deal, issued last month, dropped more than two points and was trading at 97.291%/97.876% early on Tuesday afternoon. Evergrande, which raised $2.3 billion in the biggest convertible bond deal this year, saw its bonds plunge nearly 10 points to 90.403%/91.308% as of Tuesday afternoon.

Asia Cement’s new deal was trading about 0.5% higher in secondary trading on Tuesday, according to a bond trader.


The company’s strong share price means it was unable to replicate the 20%-plus conversion premium it had achieved for the last two issues. Its $220 million deal in 2013 was issued with a premium of 24.5% and its $172.5 million deal in 2011 was issued with a 28% premium.

This time around, Asia Cement marketed its convertible bond with a 10% to 15% premium over its NT$38.4 Monday close. The company has also decided to offer 60 basis points of backend yield compared to zero yield for the 2013 bonds and 30bps for 2011.

The new bond is structured with a typical five-year, three-year put structure with full dividend protection for all bondholders.

These terms were generally seen as investor-friendly and despite having settled the conversion premium at the wide-end of the range, the company was able to upsize the deal by $15 million on top of the $200 million base deal from more than 50 accounts. The strike price was set at NT$42.4.

Based on a credit assumption of 130bp and borrow cost at 100bp, Asia Cement’s new bond was issued with a 97% bond floor and an implied volatility of 11% at the final price.

It is worth noting that the transaction took total equity-linked issuance in Asia ex-Japan to $11.25 billion so far this year, overtaking 2011 as the second-highest year for issuance over the last decade. The highest volume recorded over the last 10 years was in 2010, when $15.5 billion worth of equity-linked deals were printed.

UBS was the sole global coordinator of Asia Cement’s bond sale. Citigroup was an active joint bookunner and BNP Paribas, HSBC and Mizuho were passive bookrunners.

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