Chunghwa Picture Tubes prepares convertible

Large screen flat panel display manufacturer Chunghwa Picture Tubes (CPT) is poised to launch Taiwan''s first equity-linked offering of the year.

A $70 million convertible for the electronics company is likely to be launched either this Friday, or early next week subject to market conditions following an expected interest rate cut by the US Federal Reserve after its Open Markets meeting on Wednesday.

Citibank Taipei will handle the transaction rather than Salomon Smith Barney, since the former has a lending relationship with the group, which ranks as the country's third largest by market capitalization on the OTC market.

Indicate terms comprise a coupon of 0.5% to 1%, a conversion premium of 5% to 10% and a three-year put to yield 50 basis points to 100bp over Treasuries. The deal has a five-year maturity and will redeem at par. It is also callable after six months subject to a 130% hurdle and has a $10 million greenshoe. Local bankers say that the deal is based on a credit spread assumption of about 100bp over three month Libor for a three-year duration.

The prospective transactions marks the company's first international deal and is intended as a test of its ability to tap international investors. "It wants to ensure that it has the flexibility of being able to raise larger sums of money from the international markets, although it has no immediate need for funding," one local observer explains.

"Pre-marketing has been completed and documentation is ready," the official adds. "It's just a matter of marking sure that the markets remain settled after the Fed meeting and that there isn't too much fallout on the stockmarket from Legislative Yuan debate about the fourth nuclear power plant." 

Despite the fact that the government's decision to withdraw the plant was rejected by parliament, the TWSE Index nevertheless rose 2.5% to close at 5936.20. Chunghwa Picture Tubes, which is not related to Chunghwa Telecom, was first listed on Taiwan's OTC market in March 2000 at NT$42 per share. Since then, the company's share price has fallen in line with the overall market to hit a low of NT$18.7 on December 28. So far this year, it has risen 12.11%, to close Wednesday at NT$21.3.

With a 21% market share, CPT is Taiwan's second biggest large screen TFT LCD panel producer behind Acer and also manufactures cathode ray tubes for monitors and televisions. Taiwanese manufacturers have aggressively expanded market share over the past two years, with the Republic's production of TFT LCD panels rising from $842 million in 1999 to $3.17 billion in 2000.

Analysts believe that Chunghwa and Acer will consequently knock Japan's Hitachi and Toshiba out of the top five rankings of producers worldwide this year. The top three currently comprise Samsung Electronics, LG Philips LCD and Sharp Corp. With Taiwanese shipments set to triple over the course of 2001, analysts also warn, however, that oversupply is likely to force price cuts.

Behind Chunghwa, a number of prospective issuers have already filed with Taiwan’s SEC to raise funds from the convertible market this year. About half a dozen filed at the end of December in order to beat a year-end deadline, which allows companies to proceed without having to incorporate year 2000 financials in their documentation. 

They include Gigabyte, which is likely to launch a $115 million rolling put issue via Nomura in late February and Acer Communications and Multimedia, which is also said to be planning a rolling put structure via Goldman Sachs. Analysts believe this will partially re-finance a similar deal for parent company Acer Corp, whose own $300 million rolling put deal was put back by investors at the beginning of the year. 

According to a pipeline compiled by a local securities firm, other companies on the list include: network system manufacturer D-Link, which has mandated local securities house Grand Cathay; Quanta Computers with UBS Warburg leading a $230 million deal; DRAM manufacturer ProMos Technologies with Deutsche Bank handling a $200 million issue; Yageo Computers with a $250 million issue via Salomon Smith Barney and; DRAM manufacturer Powerchip with an issue via Deutsche.

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