Chunghwa Picture Tubes launches CB

The TFT-LCD manufacturer launches a $100 million convertible as competitor Chi Mei Optoelectronics mulls its options.

In a bid to complete funding for its 4.5G fab, Chunghwa Picture Tubes (CPT) launched a $100 million convertible yesterday (Tuesday) via lead manager ABN AMRO. Terms are defensive in a reflection of a difficult market for Taiwanese tech deals and particularly CPT, which is viewed as one of the weakest manufacturers in the flat panel sector because of its continued reliance on increasingly outdated cathode ray tube production.

The lead is said to have gone out with a 0.25% semi-annual coupon and conversion premium of 10% to 15%. The deal has a five-year final maturity with a call option in year two subject to a 125% hurdle and two put options. The first falls after 18 months and the second after three years, giving a yield to put range of 3.5% to 4%. The deal also has annual re-sets subject to an 80% floor.

Bankers say the deal has a high bond floor around the 97% level, which represents a noticeable increase over the company's two previous deals in January 2002 and February 2001. The most recent deal had a bond floor of 94.5% and its predecessor 94%. Both were led by Citibank Tapei, with the earlier deal raising $85 million and later deal $70 million.

A number of market participants also note that the proposed conversion premium is low relative to other Taiwanese tech deals, but in line with the two previous deals which were priced with respective premiums of 8% and then 12.2%.

Proceeds will be added to NT$19 billion ($550 million) raised from the domestic syndicate loan market last month and about NT$8 billion from a rights issue the month before. Around the same time, plans to raise $300 million to $400 million via a GDR were put on hold as the company's share price continued to crash. Year-to-date the stock is down 58.7%, closing yesterday at NT$13.3. In mid-February it hit a high of NT$46.

Yet as analysts point out, Taiwan's domestic capital markets have been the saviour of the country's capex hungry TFT-LCD producers since no company has become beholden to international investors in order to fulfil its funding plans. But few analysts have much visibility when the notoriously volatile sector will turn. The wild peaks and troughs have also led one tech banker to describe TFT-LCD cycles as "DRAM at warp speed".

Average selling prices for industry standard 15 inch panels dropped to $190 in September this year, marginally below the bottom of the last cycle almost a year to the month when they hit $200. In March 2002, by contrast, prices were at $260 and most companies were saying they could only fill 70% of their orders.

The upturn encouraged the whole industry to bring forward plans for 5G fabs at a cost of about $1.2 billion each. These are supposed to lead to significant cost savings as the size of the glass plates from which screens are cut can be increased from 15 inches to 17 inces.

And as industry consultant Display Search comments in a recent report, "TFT LCD equipment spending is expected to reach a record high of $8.3 billion in 2003, up 74% year-on-year despite continued price reductions. First quarter 2003 spending alone is expected to be larger than equipment spending for all of 1999."

Chi Mei is also keen to fund a new fab but because it did not list in Taipei until early August, plans for a subsequent ADR issue have become mired by its falling share price. The company originally mandated Morgan Stanley for a 500 million share issue that would raise roughly $450 million at a current share price of NT$31.

However, Chi Mei is said to be unwilling to accept pricing half where it first listed (NT$63) and has turned instead to the convertible market. It has recently filed for a $250 million convertible with Morgan Stanley and Credit Suisse First Boston at the helm. But this too is said to have run into difficulties as Taiwanese law forbids companies which are loss making to issue convertibles that pay a yield.

At the end of October, the company revised its 2002 financial forecasts and is now predicting a pre-tax loss of NT$373 for the fourth quarter.

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