Realtek Semiconductor prices debut GDR

The offering presents a reality check for the heavy Taiwanese pipeline of international equity issuers.

One day later than scheduled, the IC designer and distributor priced a 10.25 million GDS issue yesterday (Thursday). With Salomon Smith Barney as sole bookrunner, the deal had to absorb a slight softening in share price and came slightly outside of its indicative range, but succeeded in raising the entire amount projected and in doing so, becomes the largest GDR offering from the Island Republic since Powerchip in October 1999.

With 41 million primary shares and 7.5 million secondary shares sold down by the National Stabilization Fund, the company raised a total of $209.16 million (pre-greenshoe) based on an issue price of $17.25. With one GDS equating to four common shares, this represented a 12.12% discount to a spot price of NT$172 and a 9.98% discount to a 10-day moving average price of NT$167.90.

Alongside the lead, UBS Warburg was joint-lead, with ABN AMRO and Barits Securities as co-leads.

Observers say that the deal presented a number of challenges none of which concerned any deficiency on the company's part. On the contrary, the problem lay with Realtek's outperformance over the past quarter, allied to general uncertainty that the Taiwanese tech rally has much further to run.

Over the course of 2001, for example, the stock ran up 187% becoming Taiwan's third best performing stock of the year. Over the past three months, it has also risen roughly 60% against a 40% rally in the index.

"To some extent the stock price has been playing catch up with the growth story as sales are up 100% year-on-year and the company is forecasting January sales to be up 30% on December," one specialist explains. "This bucks the seasonal trend for January sales to be flatter, but even so, it's been a swift rise for the stock and this makes investors a little nervous."

Since the beginning of the year, Taiwanese bankers have also been consistently pointing out that the stock market surge has been driven by domestic retail rather than foreign institutional investment and has been a momentum, liquidity driven rally.

"If you look at the performance of Taiwanese ADRs and GDRs, they've lagged the domestic market by about 5%," the specialist continues. "International investors are being very picky about what they buy and are only looking for new opportunities and attractive pricing. There's a heavy pipeline out there and attention is now starting to turn to TSMC which began pre-marketing this week."

It seems that those issuers which are prepared to be flexible, as Realtek ultimately was, will be the ones to get deals successfully completed. Indeed, every single international Taiwanese equity deal of the year prior to Realtek has either revised terms or raised less than anticipated. Of the three completed to date, Siliconware Precision Industries softened terms on its convertible and priced a day late, while Ambit Microsystems and Benq Corp both scaled their size ambitions back by about 60%.

Realtek successfully raised the full amount and secured an order book about 1.5 times oversubscribed, with a total of just over 100 investors. About 30% were said to be global funds, with the remainder split 20% US, 30% Asia and 20% Europe.

Following the completion of Realtek, Chunghwa Picture Tubes has launched a $70 million convertible via Citibank Taipei. The five-year deal will price this morning (Friday) under indicative terms comprising a zero coupon, 7% to 13% conversion premium and two-year put with a yield of 4.5% to 4.9%.

There is also two-year hard no call, thereafter subject to a 130% hurdle. With a premium redemption structure, the deal also incorporates annual re-fixes subject to an 80% floor.

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