Fubon raises $850 million from GDR sale

The hard-underwritten transaction came at a 6.5% discount and is believed to have been somewhat short on demand. Separately, a pre-IPO investor in Taiwan-listed Ginko raised $100 million from a well-received block trade.

After seeing less than a handful of sizeable overnight trades in June when concerns about the end of quantitative easing in the US led to a sharp sell-off in Asian stock markets, July opened with a bang yesterday with three transactions hitting the market after the close.

The largest was a well-flagged sale of global depositary receipts (GDRs) by Fubon Financial Holding Co, which was seeking to raise at least $850 million. It was accompanied by a $100 million block trade in another Taiwan-listed stock, contact lens manufacturer Ginko International, and a CB of about $175 million in Hong Kong-listed software developer Kingsoft Corp.

Regional markets did stage a bit of a recovery towards the end of last week and clearly both issuers and bankers felt that there was a window to get their deals out before the US holiday on Thursday and the closely-watched payroll data on Friday.

And since the transactions were so different from one another, it didn’t really matter that all of a sudden there were three deals fighting for investors’ attention.

That said, the Fubon transaction looked a bit ambitious from the start, and according to sources last night, the demand did fall short, suggesting that J.P. Morgan, as the sole bookrunner, was left holding a portion of the deal.

That brought back memories of GIC’s $1.25 billion sell-down in GLP earlier this year, which was also done on a sole basis by J.P. Morgan. On that deal, the demand short-fall was so big that the US bank ended up holding more than 5% of the company and had to disclose its position in the stock a few days later.

Fubon is expected to have gone better than that. One source said it had attracted some good long only orders, including some from the US, but more than 50% of the demand came from hedge funds. The latter was supported by the fact that the market has known for a long time that a deal was coming and that there were close to $100 million worth of short positions in the stock.

However, the bookrunner didn’t wall-cross any investors before launching the deal at 3.30pm Hong Kong time and the fact that the order books were kept open until midnight does suggest that it was struggling to attract sufficient demand. In all, about 40 to 50 investors participated in the transaction, the source estimated.

Fubon will use the proceeds to fund its Rmb5.65 billion ($906 million) acquisition of an 80% stake in China’s First Sino Bank that was announced in December last year. The deal, which marks the first acquisition by a Taiwan lender of a China-based bank, is still awaiting regulatory approvals.

Fubon offered to sell approximately 69.8 million GDRs, which accounts for 7.3% of the bank. They were marketed at a price between $12.17 and $12.69, which translated into a discount of 2.5% to 6.5% versus yesterday’s close of its ordinary shares in Taiwan, after adjusting for the exchange rate and the fact that each GDR accounts for 10 ordinary shares.

Not surprisingly, given the recent jittery market environment, the price was fixed at the bottom for the maximum 6.5% discount and a total deal size of $850 million. The final price translated into a price per common share of NT$36.51.

Fubon is not the most liquid of stocks, but some sources said a 6.5% discount should have been enough to get the deal covered. Others thought it looked a bit on the tight side. Either way, it was definitely a lot more realistic than the 3% discount that J.P. Morgan is believed to have offered the issuer during a bake-off with several other banks a while back.

Earlier this week, one other bank offered Fubon a deal at a 3% discount, but that was for a smaller deal size. Fubon chose to stay with J.P. Morgan, though, even though the terms ended up being a bit wider than its original offer, which is testament to the US bank’s strong relationship with the issuer. J.P. Morgan also advised Fubon on the First Sino Bank acquisition.

J.P. Morgan hard underwrote the GDR issue, although it is unclear at exactly what price.

Some rivals were also surprised that Fubon decided to go ahead last night as they had been under the impression that the issuer didn’t want to sell new shares at a price below NT$40. And since the stock closed at NT$39.05 yesterday, that wouldn’t have been possible even if the discount had been tighter.

Fubon’s share price is up almost 12% this year, but has fallen 9.5% from its most recent high of NT$43.15 in mid-May. Yesterday it closed at NT$39.05.

The deal is the third largest block trade in Asia this year after GIC’s $1.25 billion sell-down in GLP in February and Goldman Sachs’s $1.1 billion exit from ICBC just before the markets turned sour in May.

It is also the largest GDR by a Taiwan issuer in 10 years, according to a banker.

Ginko International
Meanwhile, private equity firm Crimson Partners raised NT$2.99 billion ($100 million) from the sale of a 6.8% stake in Taiwan-listed Ginko International.

The deal was priced at the bottom of the indicated range at NT$488 per share, which translated into a 5.6% discount versus yesterday’s close of NT$517.

The seller offered approximately 6.13 million shares at a discount between 4.1% and 5.6%.

According to a source, this deal was well oversubscribed and could have priced higher. But given that the share price has jumped 15.4% since last Tuesday, the potential downside from trying to squeeze the price could have been greater than the benefit and hence the seller decided not to push it.

That said, Crimson is a pre-IPO investor in the stock and since the share price is up about 130% since its trading debut on the Taiwan Stock Exchange in April last year, it will still get a nice return on its investment.

The private equity firm, which holds shares in Ginko through several different entities, will still own about 11% of the company after this sale, the source said. Those shares will now be locked up for three months.

The bookrunner was said to have had indicated orders for about half the deal size before launch and in the end the transaction attracted more than 40 investors, the source said. The order book was pretty concentrated though and the allocation was pretty tight, he added. There was good participation from Taiwan accounts, and some US investors and hedge funds also came into the deal.

Being the largest contact lens manufacturer in China, Ginko is a pretty well-known name and the source noted that investors have been waiting for a trade that would help boost liquidity in stock. Even though the absolute size was only $100 million, yesterday’s transaction accounted for about 35 days of trading.

Morgan Stanley was the sole bookrunner.

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