Nanya moves forward with secondary offering

In what is becoming a rare event for Taiwan, DRAM and Flash memory manufacturer Nanya Technology will close out an NT$10 billion ($290.5 million) secondary offering by the end of this month.

The company had previously planned to sell the shares at around NT$27, but as its stock has fallen in line with spot prices for DRAM over the past few months, it had to adjust its price to NT$20.

Companies are increasingly spurring the Taiwan market for raising cash, in part because of the exchange's poor performance this year, but also because the government actively encourages established companies to raise money internationally by setting stricter criteria for secondary offerings than for an IPO. Companies with investments in China, for example, are encouraged to go to the international markets for their cash-raising needs.

In the first six months of this year secondary share offerings and convertible bond deals completed locally totalled NT$16.6 billion. International depositary receipts and convertibles totalled NT$70.3 billion. This is an even more pronounced ratio than the figures for last year, which saw NT$170 billion raised internationally versus NT$100 billion in Taiwan.

"Three or four years ago we were seeing annual figures of around NT$450 billion domestically," says one local broker. "The competition is becoming fierce among local underwriters as the pipeline dries up."

Many proposed secondary offerings have been cancelled due to falling share prices, but Nanya spokesperson Charles Kau says the company isn't taking too big a gamble with going local rather than international for its first foray to the markets since it listed last September. "The Taiwan market is terrible right now, but because of Nanya's strong support from its mother company, we have lower risk," says Kau.

Nanya Technology is majority owned by Taiwan's leading industrial conglomerate Formosa Plastics Group. The official breakdown sees Nanya Plastics as the majority shareholder with 54%, but with other Formosa subsidiaries factored in, the group owns about 75% of the company.

Proceeds from the increased capital base will go towards expansion of production lines at its two factories as the company gears up to start mass-volume production of its double-data rate (DDR) memory products.

As its name suggest, DDR is a new memory technology that doubles data throughput to the processor. But before demand for DDR DRAM memory increases, there needs to be a large base of chipsets (the bits that link memory, central processors and other components in a PC) in the market that support the technology.

Kau says he expects DDR DRAM demand to increase dramatically in August when VIA launches its DDR chipset for the Pentium 4 processor.

"We're looking to take about 80% of the market for DDR in the initial stages because the modular way we have set up production means we can ramp up production very quickly as soon as demand hits," he explains.

In order to increase output even further Nanya has plans to build a 300mm fabrication plant next year. By outputting a 300mm rather than the current 200mm wafer – the sheet that chips are cut from – companies such as Nanya can double their yield and lower their costs of production.

But to finance the construction Kau says Nanya is going to have to raise more money by the end of this year. He says the company is considering either a GDR or ADR, but adds that it is too early to estimate the amount they might need.

Nanya's stock closed today (Thursday) at NT$19.3. It hit a high of NT$75.45 shortly after listing, before plunging as low as NT$18.15 in March. The secondary offering for the company is being managed by Grand Cathay Securities.

Competitors go for seconds
Two of Nanya's local competitors in the memory market - ProMOS Technology and Powerchip Semiconductor - have also announced their intention to raise more funds in the international capital markets, just months after both completing successful convertible bond deals led by Deutsche Bank.

ProMOS has said it is readying for another US$150 million convertible and a US$200 million GDR issue sometime before October. It also plans a $200 million ADR for 2002.

The company's main recent item of capital expenditure has been the construction of its first 300mm fab, which it hopes to have in pilot production mode early next year. There are also plans for a second 300mm plant, and that has been given as the reason for the new financing plans.

ProMOS attempted to tap the local Taiwanese market twice last year, but both times the deal was cancelled as the stock price fell below the planned offer price.

Powerchip has said it intends to issue 430 million shares as global depositary receipts before the end of the year as part of its capital expenditure plans, which would yield US$271 million at today's (Thursday) closing price of NT$21.6. It too has a 300mm fab under construction.

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