Hannstar prices GDR

The Taiwanese TFT-LCD manufacturer offers investors a generous discount in order to maximise the amount of equity it puts on its balance sheet.

Joint bookrunners Credit Suisse First Boston and ING completed a $175 million GDR for Hannstar Display Corp shortly before Taiwan's open yesterday (Tuesday). The 23.778 million unit offering was priced at $7.36, representing a 20% discount to the stock's close on Monday. There are 20 shares per GDR.

The transaction was priced at the wide end of a 15% to 20% indicative discount range, but was increased to $175 million from a marketed size of between $100 million and $150 million. On top of this, there is also a $26 million greenshoe.

Observers say that three key aspects stand out. Firstly this is a debut GDR, so the discount was always likely to come in above 10% because the deal will not be fungible with the local stock for three months.

Secondly, the company completed a $175 million equity-linked deal in February, which is trading in-the-money on a conversion discount of 9% to 12%. This set a reference price for the new deal, although the investor base for the two transactions is quite separate.

Thirdly, investors remain dividend on the current direction of the tech sector. Hannstar is said to have lagged the initial share price performance of bigger competitors such as AU Optronics and Chi Mei, but then caught up quickly as investors became confident the rally would last. In the week and a half preceding pricing the stock is said to have traded limit up virtually every single day.

Last week's sudden market downturn, however, caused many accounts to pause for thought and for smaller companies in the sector, investors would consequently be more hesitant. As a result, the book was said to have been price sensitive.

Year-to-date, Hannstar is up 45.89%. From its mid May low of NT$6.5 per share, however, it is up a more spectacular 250%. Last Thursday, when the TWSE started to come under pressure, Hannstar fell 2.5%, only to then close limit up on Friday, when the leads started to market the deal at a 15% to 20% discount. Then on Monday, it fell a further 1.5% ahead of pricing.

Observers say the deal was pitched at a price to 2003 book valuation of 1.3 times compared to a 1.7 times average for the TFT-LCD sector. The company itself is currently trading at 1.5 times.

Books are said to have closed two times covered, with participation from 85 accounts. Just over 80 are said to be new to a stock, which has a low QFI ownership around the 10% mark. Geographically, there was a split of 47% Europe, 42% Asia and 11% US.

The deal represents 13% of the company's enlarged share capital and its main purpose was to inject equity onto a leveraged balance sheet. The capital intensity of the sector has long worried analysts, although Hannstar is said to be better positioned than most. Compared to a sector average net debt to equity ratio of 90%, Hannstar currently stands at 67%.

"It came down to a trade off between size and pricing," says one observer. "The company wanted equity, so it was prepared to ease up a little on pricing."

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