KGI Securities raised $286 million by selling global depositary receipts (GDR) on Wednesday. The money raised will be used to fund the acquisition of Taishin Securities, which will make KGI the second largest securities firm in Taiwan.
The offering consisted of 33.5 million GDRs, each equivalent to 20 common shares. The GDRs were priced at $8.54 each, which is equivalent to NT$13.97 per common share. The final price translates to a 5% discount to Wednesday's closing price. This is a tight discount compared to the other companies that have sold GDRs through accelerated bookbuilds in recent weeks: Shin Kong Financial raised $375 million at a 9.9% discount, and Chunghwa Picture Tubes raised $295 million at a 19.7% discount.
Although there are new regulations in Taiwan which allow companies to price their GDR sales at a 20% discount, KGI decided to stick to the maximum stipulated by the old rules, thus setting the top of the discount range at 10%. Inotera Memories, which raised $312 million late last week, also stuck to the 10% upper limit.
There were approximately 50 accounts on the book, with most of the demand coming from long-only funds, according to a source. Although the book was left open long enough to allow US investors to participate, around 80% of the demand originated from Asia.
Investors were said to be attracted to KGI due to its recent acquisition of Taishin Securities. The deal, announced in May, requires the acquirer to cough up NT$29 billion ($876 million). Once the deal is completed, KGI will become Taiwan's second largest securities company, with an 8.5% market share. At the time of the deal, Taishin Financial, the company offloading Taishin Securities, said it would use the capital raised to improve its cash position and to strengthen its banking interests overseas.
Morgan Stanley was the global coordinator and sole bookrunner on the KGI deal. It also advised the company on its acquisition of Taishin Securities.
KGI's GDR sale shows that investors still believe that the company's shares could continue to rise, even though its current share price is more than double what it was in early March. More generally, research published by Citi this week showed that foreign investors were still net buyers of Taiwanese financial stocks in July. The rate of QFII purchases has slowed down though: ownership by foreign investors in the sector was down to 11.5% in July, compared to 12.1% in June.
Much of the foreign interest in Taiwanese financial companies has been premised on developments in cross-strait relations, which could open China up to investment from its island neighbour. These developments are not coming as quickly as some market observers anticipated, and in the meantime, investors have gone through another weak reporting season, which highlights the fact that fundamentals are still a serious issue for companies in Taiwan.