Hon Hai brings rare Taiwanese dollar bond

The Taiwanese technology group taps the US dollar market after completing its $3.8 billion takeover of Japan's Sharp.

Hon Hai Precision Industry executed its first dollar bond in two years on Wednesday, raising $1 billion from a dual tranche offering that offered investors rare exposure to a corporate and tech credit.

G3 bond offerings from Taiwan tend to come but once a year and the last deal from the island nation was Formosa Plastics’ $1 billion 10-year deal in April 2015.

Hon Hai’s re-entry comes shortly after its completion of a $3.85 billion acquisition of Japanese display manufacturer Sharp, which received approval from China’s antitrust authorities in mid-August.

Founder, Terry Guo, hopes Sharp’s OLED (original light emitting diode) technology will enable Hon Hai to maintain its market share with Apple should the US company switch to an all-glass casing for its next generation iPhone 8 (the company currently derives about 50% of its revenues from the US tech giant).

Its new Reg S deal proved fairly popular with investors, attracting a peak order book of $2.7 billion shortly before final guidance was set, according to one syndicate banker.

Both A- rated tranches priced at the tight end of revised guidance.

Initial guidance for the five-year tranche was set at 130bp over Treasuries, before being narrowed to 5bp either side of 115bp.

Final pricing for this $600 million tranche was fixed at 99.76% on a coupon of 2.25% to yield 2.301%, or 110bp over Treasuries according to a term sheet seen by FinanceAsia. The issuance vehicle was Foxconn (Far East) Ltd, with a guarantee from Hon Hai Precision Industries.

For the 10-year tranche, the group pitched the deal at 160bp over Treasuries, before revising it to 5bp either side of 145bp. Final pricing of this $400 million tranche came at 99.214% on a coupon of 3% to yield 3.092%, or 140bp.

Syndicate bankers and credit analysts had fairly divergent views over where fair value should lie, which was not that surprising given the lack of comparable Taiwanese benchmarks.

As Mizuho pointed out in a credit note, this factor could underpin secondary market trading since the deal should appeal with both Taiwanese and Japanese investors.

The Japanese bank estimated fair value at 100bp for the five-year tranche and 125bp for the 10-year, implying 15bp upside on both tranches.

Soc Gen, on the other hand, concluded that indicative pricing looked tight even before guidance was narrowed and concluded that, “in this market you (investors) may well get the chance to pick it up cheaper in secondary.”

Syndicate bankers suggested the two tranches had come with a reasonable 5bp new issue premium.

They pointed to Korean telecom and wireless operator, KT Corporation, as the best comparable for the shorter-dated tranche. The Baa1/A- rated credit has a 2.625% April 2019 bond, which was trading on a G-spread of 82bp on Wednesday.

It also has a 2.5% July 2026 bond, but like many Korean credits its curve is inverted because of heavy demand for longer-dated assets. Thus this bond is trading tighter than its three year on a G-spread of 75bp.

Hon Hai’s existing 2.125% December 2017 bond was trading wider than KT Corp and for shorter duration on a G-spread of 100bp on Wednesday.

The syndicate banker said Formosa Plastics was the best comparable for the 10-year tranche. Its BBB+ rated 3.375% April 2025 bond was trading on a G-spread of 163bp.

"Hon Hai is one notch higher rated than Formosa Plastics and is in a better industry, so pricing has taken those factors into account," the syndicate banker concluded.

Another comparable was Huawei's unrated $2 billion May 2026 bond, which was trading on a G-spread of 188bp.

Bank of China Hong Kong, CitiGoldman Sachs and HSBC were joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.
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