Nan Ya GDR and exchangeable priced

A tale of two different offerings.

DRAM manufacturer Nan Ya Technology completed a concurrent GDR and exchangeable offering on Friday after a second day of losses on the TWSE. The sudden popping of the tech rally meant the GDR had a much tougher time than anyone had envisaged at the beginning of the week, while the exchangeable proved a far easier sell since it was backed by the credit of Nan Ya Plastics.

The GDR was led by Goldman Sachs and UBS, which acted as global co-ordinator on both halves of the deal. Proceeds of $221 million were raised on a base deal size, which was downsized 20% from 40 million GDRs to 32 million.

With one unit equaling 10 shares, a total of 320 million new shares were sold at a 12% discount to the stock's NT$27 close on Friday. This was the outer end of the marketed price range. A greenshoe of secondary shares was also cut from 8% of the base deal size to 5%.

After a week of roadshows, books for the deal closed 1.3 times covered, with price sensitivity from some accounts about 3% to 5% above the pre-marketed discount level. This and price sensitivity on the part of the company was the main reason for the decision to scale the deal back.

As one observer comments, "The company was conscious that its share price had fallen over 7% on the last day of marketing and didn't want to sell the full amount of stock at a 12% discount on top of this."

In the context of the whole marketing period, however, the stock was up 11% from the start to finish of roadshows and was unlucky to hit a market wobble just as the book should have been coming together. Year-to-date, it is still up 34.35% and currently trading on a price to 2002 book valuation of just under two times.

Pricing also falls in line with other debut GDR's from the DRAM sector, which have all had relatively steep discounts to compensate investors for the fact that they do not become fungible with the local stock for three months.

About four investors placed 10% plus orders and the book was said to have a pretty even geographical split between the three regions. Non-syndicate bankers, on the other hand, believe a disproportionate number of investors were hedge funds.

"The DRAM sector is not know for high QFII ownership," says one, "And many fundamental investors are worried the tech rally has already run out of steam."

Alongside the two leads, ABN Amro, Citigroup and Morgan Stanley were co-leads, with Daiwa SMBC, Grand Cathay and Yuanta Securities as co-managers.

Where the exchangeable was concerned, lead managers Morgan Stanley and UBS already had the book covered within two hours of launch on Wednesday, but had to wait for the DR to price on Friday in order to set final terms. By this point, the book topped the $3 billion mark.

The $240 million deal (including greenshoe) was exchangeable from Nan Ya Plastics into Nan Ya Technology, which the company set up in 1995 and floated on the TSWE in 2000. Pre-deal it held roughly 50% and will drop to roughly 46% pre shoe.

With a zero coupon, negative yield structure, the deal was priced to redeem at 96.31% equating to a negative yield of minus 0.75%. There is also a two-year call and two-year put at 98.5%, the tight end of terms. The exchange premium was set at 37% over the strike price of the DR, equating to an effective premium of 25% to the stock's spot close.

Underlying assumptions comprise a bond floor of 94.5% based on a credit spread of 130bp over Libor. There is no borrow, no dividend yield and implied volatility of roughly 40% using historic volatility of 50%.

With an implied credit rating of BB+ Nan Ya Plastics is not only higher rated than the vast majority of the Taiwanese tech companies, but also offers diversification from the sector. As such, strong credit demand was said to have driven the deal, with an asset swap allocation of about 60%.

About 260 investors participated.

Co-leads were ABN Amro, Citigroup and Goldman Sachs, with Daiwa SMBC, Grand Cathay and Yuanta Securities as co-managers.