Chunghwa Picture Tubes calls one CB and prices another

The Taiwanese large screen flat panel display manufacturer priced a new $70 million convertible on Friday.

With Citibank Taipei as lead manager, Chunghwa Picture Tubes (CPT) has offered investors an enormously cheap volatility play.

Priced at the tight end of indicative terms, the deal has a five-year final maturity and zero coupon with a par redemption structure. The conversion premium has been set at 12.2% to the stock's NT$40.2 close (Thursday), against an indicative range of 7% to 13%, with a two-year call subject to a 130% hurdle and two-year put at 109% to yield 4.4%. There is also an annual re-fix subject to an 80% floor.

The underlying valuation comprises a bond floor of 94.5%, theoretical value of 120% and implied volatility of 18%. This is based on a credit spread of 340bp over Libor, a zero dividend yield, 4% cost of stock borrow and volatility assumption of 60%. Historic volatility is also 60%.

On the same day that the deal priced, CPT called its existing $85 million convertible issued at the very beginning of February 2001. This also had a five-year maturity, 0.5% coupon, 8% conversion premium, par redemption and three-year put to yield 75bp over Treasuries.

What distinguishes the old deal from the new is the short six-month call option attached to the former offering, which was inserted because the company believed its share price was set to re-bound quickly from a then trading price of about NT$17. Over the course of 2001, however, it subsequently slid to a low of NT$5.83 on September 24, before a meteoric sevenfold climb over the past four months to a current level of NT$40.4 (Friday's close).

Bankers say that the new deal appealed heavily to hedge funds, which took up roughly half the book. There was also a geographical split of 60% Asia, 40% Europe.