The pricing was delayed from Tuesday to evaluate the potential legal impact of the investigation and to allow investors who had already submitted orders to have another look at the issue. But as no investors withdrew or changed their orders, the company and sole bookrunner Morgan Stanley decided to go ahead with the deal yesterday. And with virtually no price sensitivity in the book they were even able to price the equity portion at a zero percent discount to the underlying Taiwan-listed shares for a total GDR deal size of $330 million.
The offer comprised 35 million GDRs which were priced at $9.58 per unit.
Together with the $350 million exchangeable that was issued by parent company Chi Mei Corporation the total funds raised was about $680 million. The GDR also has a 15% greenshoe that could lift total proceeds by $55 million to $735 million.
As the GDRs are backed by secondary shares that are also sold by Chi Mei Corp (at a ratio of 10 common shares to one GDR) all the proceeds will end up with the parent company for now. Once yesterdayÆs issues have settled, however, CMO will do a private placement to its parent as a way of channeling the money into the listed company.
The sale is somewhat smaller than the $900 million initially talked about, which is partly a result of the underlying share price having fallen 9% since the start of pre-marketing on November 29, including a 5.8% drop on Tuesday as the investigation became known. The stock was unchanged at NT$31.10 yesterday as Chi Mei said its subsidiaries in the US and Japan had been requested to provide information to help the investigators, suggesting the company itself wasnÆt under investigation.
On Tuesday, KoreaÆs LG Philips LCD and Samsung Electronics and TaiwanÆs AU Optronics confirmed they are being probed by regulators with regard to possible anti-competitive conducts. The investigation is another blow to an industry which is already struggling with falling screen prices.
Chi Mei for one has seen its share price fall 38% from a 2006 high of NT$49.81 that it hit in February. However, for investors who believe an industry turnaround is around the corner, that means a good buying opportunity as it has pushed the valuation on the stock as far down as 1.1 times its estimated 2007 book value û well below the 1.4 times that AU Optronics fetches and the cheapest it has been in a long time.
In a research note issued last month, Morgan Stanley projected a ôsuper-cycleö for the TFT-LCD industry in the second half of 2007 and in 2008 following a soft landing in the first half of next year. The improvement will be backed by LCD TV growth.
ôBy 2009, when LCD TV penetrates 50% of the TV market and retail price points are firmly established for all sizes, panel pricing will no longer be aggressive, in our view. The industry should enjoy margin expansion on continued cost improvements,ö Morgan Stanley analyst Frank Wang argued.
According to sources, both the GDR and the exchangeable were more than two times covered which contributed to the equity being able to price at a 0% discount this time around, compared with a 4.9% discount on a similar sale last year. One observer noted that investors were keen to build positions in the stock at the current low valuations.
The equity attracted about 70 investors, with the majority of the deal ending up with Asia-based accounts and the remainder pretty much going to the US. The buyers included technology specialists and there was also said to have been a good conversion from the roadshow meetings.
Given that the zero-coupon bonds were priced off the final price of the GDRs, there was a bit more price sensitivity in this part of the order book and the premium and yield were both fixed at the generous end of the offered ranges.
The conversion premium was set at the bottom of a 20% to 25% range above WednesdayÆs NT$31.10 closing price and the yield to maturity ended up at 0.5% after being marketed at 0% to 0.5%.