Observers said the pricing was partly a function of the high level of liquidity in the market and the shortage of CBs from Taiwan over the past year.
ôLike the other deals this week, this was very quickly covered with a lot of chunky orders. There is huge liquidity out there and you can perhaps price a bit more aggressively because of it,ö one of the observers say.
Earlier in the week, Indian telecom services provider Reliance Communications raised $1 billion from a CB that was multiple times covered and Suntech Power Technologies sold $425 million worth of convertibles targeted primarily at the US market that was 4-5 times covered. Also, SM Investments of the Philippines attracted over $2 billion of demand for its $270 million of convertibles.
According to sources, ProMOSÆ CB, which also has a $50 million upsize option, was about three times covered at the final price and even more so at the bottom end of the range. About 100 investors bought into the deal, including domestic Taiwanese investors, who were helpful in terms of building momentum in the book.
Of the total demand, about 40% was said to have come from Asia, 35% from Europe and 20% to 25% from offshore US accounts.
The bonds, which were sold through joint bookrunners ABN AMRO Rothschild and JPMorgan, have a five-year maturity with a two-year put and will pay no coupon. They were offered at a fixed yield to put of 0% and with a conversion premium ranging from 15% to 21%. It was priced off the top at 19% over FridayÆs closing price of NT$12.35 to take account of the price sensitivity in the book, although sources said it was multiple times covered throughout the range.
A 19% premium over two years with a zero yield is aggressive though, particularly in combination with an 86.7% bond floor. The latter means investors were willing to pay more than 6.5 basis points per year for the equity option, and suggests they are optimistic about the share price and the companyÆs growth profile.
There is however, a conversion price reset, which will see an annual adjustment of the conversion price to 101% of the market price subject to an 80% floor. There is also an issuer call after two years, subject to a 120% hurdle.
Still, the initial premium is well above the 12% the company achieved on its previous CB in June 2005, which also carried a reset mechanism. That bond paid a 6.5% yield to put and had a 96%-97% bond floor.
From the companyÆs view, one reason for the more favourable terms this time is that the credit has improved strongly since the previous bond, which used a credit spread between 400 and 450 basis points. This time sources said it was ôin the region of 200 basis points". ABN AMRO provided a credit bid at that level for about half the issue size which helped support the deal at the start of the bookbuilding. Once the oversubscription level climbed, though, there proved to be less of a need for this and it was estimated that the offered asset swaps hadnÆt been taken up in full.
Other assumptions included a full dividend protection and a stock borrow cost at 5%. The implied volatility came out at 29%, compared with an historic volatility of about 27%.
The share price has come down since the June 2005 bond issue, when it was trading at NT$13.65, but is up about 5.5% from July this year when the company sold $333 million of Global Depositary Receipts. The share price did close as high as NT$15 in early December, but has been on a slide since then amid a drop in DRAM prices.
Despite the recent decline, however, analysts are still positive about the medium-term outlook for selling prices as the sector still hasnÆt seen the full impact from the launch of MicrosoftÆs new Vista operating system, which is expected to lead to more upgrades and also requires more DRAM chips to run. The 20% decline in DRAM prices in January was also seen to be largely due to a US PC manufacturer selling off its built-up inventory, making it something of a one-off, one sources argued.
The money raised from the latest issue will be used for capacity expansion at the companyÆs latest 12-inch fabrication plant in Taichung (Fab 4). Its Fab 3 in the same city is currently running close to full capacity.
Like other companies in TaiwanÆs capital-intensive semiconductor industry, ProMOS is a frequent issuer in the capital markets. Aside from the already mentioned GDR in July 2006 and the CB in June 2005, it also completed a GDR in 2004 and a CB in 2003. ABN AMRO Rothschild and JPMorgan have been involved in arranging all these issues.