E-Ton Solar returns with CB after scrapping GDR

The bonds offer zero yield, but the conversion premium is fixed at the top of the 20%-25% range after strong investor demand.
Three months after calling off an attempt to raise fresh cash from a GDR issue, E-Ton Solar Tech last night pocketed $100 million from a convertible bond that will pay no interest to investors. The bonds also carried other features, including a conversion price reset, which suggests the company would still prefer to have equity on its books.

This was the third zero-yield offering by a Taiwanese company in the past few weeks and adds to the emerging hopes of a proper revival of international equity-linked issuance from this market.

The bonds from TaiwanÆs second largest manufacturer of solar cells met with strong demand from investors with the offering being about five times covered, according to market sources. At least 50 to 60 investors submitted orders.

The interest would have been helped by the fact that the share price has come down slightly to yesterdayÆs close of NT$596 from NT$642 at the time the GDR sale was postponed in mid-August.

Too steep a valuation following a sharp rise in the share price since the companyÆs listing on TaiwanÆs GRETAI over-the-counter market in March, including a 6.5% gain during the two-week roadshow, was said to have been the key reason why investors walked away from the GDR, which was being arranged by Citigroup.

But with sentiment for the solar power sector still strong, as evident from the fact that Chinese solar maker Candian SolarÆs $115.5 million Nasdaq IPO was more than 10 times subscribed last week, investors appear to be willing to bet for yet more upside in the longer term.

The CB, which was sold through JPMorgan, was priced with a conversion premium of 25% over MondayÆs close, after being offered at 20% to 25%. The bonds have a five-year maturity, but can be put back to the issuer after 18 months. In the meantime they will pay no coupon and with the issue price, redemption price and put price all set at par, there will be no return for investors who do not covert into equity.

To help speed up that process there is an issuer call after 18 months, subject to a 130% hurdle and there is a conversion price reset on each anniversary to 101% of the average share price at the time. The reset is subject to a floor of 80% of the initial conversion price of NT$745.

The credit spread was set at 135 basis points, were the bookrunner offered about $20 million worth of asset swaps. There is a full dividend protection and the stock borrow cost was assumed at 5%. This gave a bond floor of 90.7% and an implied volatility of 32.5%, which is well below the historic volatility at 46%. But given that it isnÆt possible to short the stock, that difference will have little significance for the bondholders.

The successful deal would have come as a bit of a relief for the company, which according to the term sheet will use the money for expansion, including the construction of a new factory and the purchase of machinery and equipment for the same. Some of the proceeds will also be used to pay for raw materials.

E-Ton Solar, which designs and manufactures photovoltaic (PV) solar cells that convert sunlight directly into electricity, saw its share price quadruple from the IPO price of NT$218 on the first trading day. It then became the first Taiwan-listed company in 15 years to see its share price push through NT$1,000 û and that only four days after its debut.

After some profit-taking and a bonus issue that divided the value of each existing share by 1.42, the share price came down to more manageable levels but at a price of NT$642 it was still up more than 300% and traded at 20.5 times its projected 2007 earnings, which compared with about 17 times for its larger Taiwan-listed competitor Motech.

YesterdayÆs close puts the stock 288% above its March listing price and at a 2007 earnings multiple of 19 times.
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