Deutsche buys $140 million of TCL Multimedia CBs

Based on past practices, the bank is expected to keep part of the investment and syndicate the rest.
Investors got a rare glimpse into the private world of principal investing yesterday when TCL Multimedia Technology Holdings published an announcement saying Deutsche Bank had bought $140 million worth of bonds convertible into shares of the company.

While Deutsche Bank would normally have kept this kind of investment quiet, TCL was required to issue a statement because the investment would account for between 42% and 70% of its existing share capital if the bonds are fully converted.

This latest investment by Deutsche Bank comes less than a week after it bought $200 million worth of high-premium convertible bonds of Indian wind turbine company Suzlon Energy for its own books and then, in an unusual move, offered an additional $100 million to investors through the public market.

The TCL investment is believed to follow the more common lines of principal investing whereby a bank initially commits to buying the entire transaction and then slices it up into parts that are sold on to other investors û the kind of investment referred to as ôsyndicated investingö in the latest issue of FinanceAsia magazine. Typically the bank will retain one part and, just as typically, the sale to other investors will be conducted in private with no further announcement either through the company or the bank.

The TCL announcement didnÆt specify if there were to be other investors involved, but the wording of the statement certainly left it open for such a scenario, saying Deutsche had ôagreed to subscribe and pay for, or procure subscribers to subscribe and pay for, the bondsö.

According to market sources, Deutsche Bank is highly active within this space, which is primarily defined by the fact that the bank puts its own balance sheet to use for longer than on a normal ôboughtö equity placement or CB where the deal is immediately sold on to the market.

The TCL CBs have a five-year maturity and will pay a coupon of 4.5%. If not converted by the time they mature, the bonds will be redeemed at 137.5% of face value for an annual yield of 7.5%.

The initial conversion price will be finalised over the next 26 trading days at 115% of the volume weighted average price between now and then. It will be no lower than HK$0.40 however, and no higher than HK$0.667. At the lower end this represents a discount of 27.27% to MondayÆs closing price of HK$0.55 and at the top end a premium of 21.27%.

There is also an annual reset down to a floor at 75% of the initial conversion price. The bonds are convertible at any time starting from 30 days after settlement.

The companyÆs share price gained 3.6% to HK$0.57 yesterday on news of the fund raising after rallying as much as 18% in the first few minutes of the session.

TCL, which is the television unit of ChinaÆs largest publicly traded consumer electronics manufacturer TCL Corp, said it expects to get net proceeds of about HK$1.06 billion ($136 million), which it will use primarily to repay outstanding syndicated loans. The balance will be used as working capital.

The company has seen its borrowings and interest costs balloon following its acquistion of French company ThomsonÆs TV unit in 2004, while earnings have come under pressure as sales of traditional cathode-ray tube TVs are declining. The company is trying to refocus on the manufacturing of LCD TVs to offset the sliding sales.

In a separate attempt to raise cash, TCL last week proposed a one-for-two rights issue at HK$0.40 per share, which will be underwritten by its controlling shareholder.

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