E.Sun Financial sells $106 million of GDRs

The deal comes on the back of investor meetings in Hong Kong earlier this week and is priced at a 4% discount to the latest market price.

Taiwan’s E.Sun Financial Holding Co has raised $105.8 million from the sale of global depositary receipts (GDRs) to help strengthen its capital ratios and fund future expansion.

The deal was launched and completed after the close of Taiwan trading yesterday and comes on the back of a non-deal roadshow on Monday and Tuesday this week, during which the management met with investors in Hong Kong.

As the feedback from those meetings was very good, one source noted that there was little point in waiting to do the deal. In fact, E.Sun had initially planned to schedule investor meetings in Singapore as well, but since the response in Hong Kong was so positive, it saw no need to do so.

The majority of the demand came from investors who attended the meetings in Hong Kong, the source said. Citi was the sole bookrunner for the GDR and also arranged the non-deal roadshow.

The deal was fully subscribed in about 45 minutes and was said to have been very well covered when the order books closed at 6pm Hong Kong time after about three hours of bookbuilding. However, the price was still fixed at the bottom of the range.

The company, which is active within commercial banking, securities and insurance brokerage and venture capital, sold 8 million GDRs, which are equal to 200 million Taiwan-listed common shares and accounts for 4.2% of the existing share capital. They were offered at a price between $13.23 and $13.49 each, which translated into a discount of 2.2% to 4% versus the NT$16.15 close of the common shares yesterday.

The final price of $13.23 is equal to NT$15.50 per common share after taking into account the exchange range and works out at a 4% discount to the close and a total deal size of NT$3.1 billion.

But as the share price has gained a combined 2.2% in the past couple of days, the bookrunners actually marketed the deal on a discount versus the three-day volume-weighted average price of NT$16.02. On that basis the final price came at a slightly narrower discount of 3.25%.

To put it in context, Taipei-listed financing and leasing company Chailease last week priced its debut GDR at a 6.9% discount. However, that deal was almost twice the size at $206 million and also came on the back of a 116% share price rally since its IPO in December last year.

About 40 investors participated in the transaction and the allocation was split about 55-45 between hedge funds and long-only investors. The buyers included some existing shareholders as well as some domestic Taiwan institutions that were able to participate through offshore accounts. Onshore Taiwan funds cannot buy GDRs.

As noted, most of the demand came from Hong Kong-based investors, although there were also some orders out of Europe.

E.Sun has had a GDR programme since 2004 and, like its previous issues, the new GDRs will be listed in Luxembourg. However, most of the buyers are expected to convert the depositary receipts into common shares as soon as they get them. This will effectively extend the time it takes before they can trade the securities to eight days from the usual three, but means investors will have exposure to a significantly more liquid instrument.

Even without the non-deal roadshow, the deal was well flagged as E.Sun said in a filing with the Taiwan Stock Exchange on September 19 that its board of directors had approved the issuance of up to 200 million new common shares to be sold through GDRs. The share price has been drifting lower since then and has lost a total of 6.9% since it hit a 2012 high of NT$17.35 on September 14. The benchmark Taiwan weighted index has fallen 3.5% in the same period.

That said, E.Sun is still up 38% since the beginning of the year.

Analysts at J.P. Morgan said in a research note issued at the time of the company’s announcement of the pending sale that a short-term overhang on the share price was to be expected as the fundraising came as a surprise and the market needed to factor in the dilution.

The J.P. Morgan note said the management had told analysts that part of the capital will be used for overseas branch expansion in Singapore and China. They also noted that this is the company’s second capital raising in 12 months after a $260 million rights issue in September last year and said this supports their “relatively cautious view on E.Sun compared to the street.”

J.P. Morgan has a neutral recommendation on the stock and a target price of NT$16. By comparison, 18 of the 23 analysts that cover E.Sun according to Bloomberg, recommend investors to buy.

E.Sun is viewed as one of the best managed financial holding companies in Taiwan and investors also like the company because of its focus on small and medium-sized enterprises and relatively strong fundamentals, including one of the lowest non-performing loan ratios among its peers. It reported 6.8% loan growth in the first half of this year, which, according to the J.P. Morgan analysts was above the industry average.

According to the source, E.Sun’s capital adequacy ratio will improve to 12.8% from 12.4% following the GDR issue and its tier-1 capital ratio will increase to 9.25% from 8.8%. Both are above the sector average of 11.25% and 9% respectively.

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