ChipMOS brings second Asian CB in one night

Deal size likely to rise to $100 million from $85 million amid solid demand.
ChipMOS Technologies last night helped to bring some much needed life back into the Asian convertible market as it raised a minimum of $85 million from the sale of five-year bonds.

The offer coincided with Hynix SemiconductorsÆ larger $471 million offering, sparking some hope that issuers are getting ready to again tap the market, which until yesterday had seen only two deals at $100 million or above since early August, including one ringgit-denominated offering.

Taiwan-based but Nasdaq-listed ChipMOS, which provides test and assembly services for semiconductors used in LCD panels and other flat screens as well as other advanced memory products, was expected to increase its deal size to $100 million as the upsize option of $15 million worth of bonds had already been allocated and there was sufficient demand to absorb the full size, a source said last night.

This would be a chunky fund raising for the company, whose market capitalisation is no more than $400 million. The proceeds may be used to re-finance an existing convertible which has a put coming up. The company has already alerted the market to the fact that the holders of that bond may exercise their right to sell it back to the company. If that doesnÆt happen, the proceeds will go towards capital expenditures instead.

At the base size, the book was more than 2.5 times covered with orders from about 40 investors. Offshore US accounts took a good portion of the deal, while the remainder went mainly to London and the rest of Europe. A handful of Asian investors also participated.

The bonds were offered to investors with a coupon between 3.125% and 3.625% and were priced at the mid-point of 3.375%, which will also be the equivalent of the yield as the bonds are both issued and redeemed at par.

Investors have the right to put the bonds back to the issuer after two years at that yield and there is also a call option after two years, subject to a 130% hurdle.

The conversion premium was fixed at 19.1% over a price of $5.75, which was deemed to be a sort of equilibrium at the time of pricing, and which gave a conversion price of $6.85. The underlying stock continued to trade throughout the marketing process and not surprisingly ended up falling 5.5% during the session to a close of $5.81, having traded as low as $5.45 at one point.

The bonds were initially offered to investors with the conversion premium between 17% and 22%.

The underlying assumptions included a credit spread of 325bp where sole bookrunner Lehman Brothers provided $30 million worth of asset swaps that were largely taken up. There is also a full dividend protection as the company, as is a common practice in the capital intensive chip industry, currently does not distribute any of its profits. The stock borrow cost was set at 4.50%.

This gave a bond floor of 91.2% and an implied volatility just below 26%. The 100-day historic volatility is about 34%.

Lehman Brothers is not often seen in the Asian CB market nowadays. Before ChipMOS it has brought only one other deal to market this year in the form of a $120 million offer for IndiaÆs Videocon Industries that it arranged jointly with DBS, but it does have a long-standing client relationship with ChipMOS, having among other things also arranged the companyÆs outstanding 1.7% CB that is due in 2009.
¬ Haymarket Media Limited. All rights reserved.
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