FinanceAsia Achievement Awards 2000 - Best Secondary Offering

Chartered Semiconductor, $1.01 billion secondary offering

Salomon Smith Barney

The world's third largest foundry manufacturer was responsible for South East Asia's only transaction above the $1 billion mark this year and managed to pull it off against one of the most volatile backdrops of a volatile year. For lead manager Salomon Smith Barney, the deal marked a real test of its execution abilities.

Faced with a stock that was bouncing around by up to 8% on a daily basis, the lead manager also had to contend with a number of selling shareholders all with slightly divergent interests As one specialist TMT fund manager reviewing the year puts it, "It was far and away one of the most difficult deals to do. Because Chartered is not the industry leader, it's also not a must hold in the same way that China Mobile was when it came later in the year. Salomon did a very good job getting that thing out."

Key to making the ADR and share placement a success was finding the right market window and making sure the stock held firm in immediate secondary trading. Where the former was concerned, the Nasdaq suffered its largest one-day point loss in history mid-way through roadshows, dropping 12.1% on April 14.

The deal was consequently put on hold and then revived again on May 2 after global markets showed signs of stabilizing. To minimize execution risk, Salomon opted for an accelerated bookbuild and reduced the issue size slightly. Hence, while Chartered proceeded to issue 78 million primary shares as intended, Singapore Technologies, cut back its secondary share sale from 90 million shares to 50 million in the process reducing its stake from 70.1% to 62.6%.

By this point, however, a handful of strategic investors that had bought into Chartered's October 1999 IPO, were out of their lock-up period and free to sell their 710,000 shares on the open market. Persuading them that it was in everyone's interests to stay in the deal and work together proved to be another of the deal's major accomplishments

What proved even more problematic was making sure that the stock held at its $65/S$11.20 placement price, since Singapore forbids stabilization of secondary offerings. Salomon accordingly decided to price the deal after Singapore's close and stabilize it through Nasdaq. Market participants believe that over the first weeks, it then actively and aggressively stabilized through its own book and to the tune of up to $100 million.

As Scott Ferguson, Salomon's head of ECM commented at the time, "The dual offering structure alleviated the problem somewhat, since stabilizing across Nasdaq had an indirect impact upon the SGX, as arbitrage narrowed any discrepancies in the pricing on the two exchanges." Careful placement not only ensured that the greenshoe was later exercised, but also helped keep the stock above its $65 placement price until September, when it began to crumble alongside the whole sector.

Success meant that Chartered had achieved its twin objectives of securing MSCI inclusion and raising funds for a new Fab. The first of the big three semi-conductor deals from Asia over the course of 2000, the issue also set a new record for Singapore, where it represents the largest secondary offering to date and the second largest equity offering.

For fund managers, Chartered also stands out as one of Asia's more transparent and open companies. "For me what I remember most clearly was the sophistication of it marketing pitch," one account recalls. "The way they positioned themselves as a leader in the communications equipment market was very impressive. At the time it was the right thing to do and although the whole sector's now fallen out of bed, investors will come back to the company when the sector revives, because they will remember Chartered's R&D expertise."

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