UBS launched and closed a $200 million convertible for Siliconware Precision Industries (SPIL) after Asia's close on Friday. Terms for the deal show just how aggressive Taiwanese issuers are becoming and how they appear to be getting away with it at a time of supply/demand imbalance in the primary market.
With a five-year final maturity, the zero coupon, zero yield deal has a very long put option after four years. It was marketed on the basis of a 0% to 0.5% yield.
The conversion premium was settled at 15% to the stock's closing share price of NT$40.9 per share, again the aggressive end of a 10% to 15% range. There is also a call option after two years subject to a 120% hurdle.
Underlying assumptions comprise a bond floor of 78.7%, implied volatility of 38.4% and theoretical value of 100.76%. This is based on a credit spread of 275bp, 500bp borrow cost, zero dividend and 40% volatility assumption. One-year volatility currently stands at 47% and 50-day vol at 44%.
One of the most notable aspects of the deal is the exceptionally low bond floor, a reflection of its deal's equally long put option. Observers believe this is the lowest bond floor on record for a Taiwanese issuer and came from the issuer's desire to extend the maturity as far as possible and the yield as low as possible. In return, SPIL was willing to give up some premium.
Specialists say it was able to achieve these terms because there has been so little issuance out of Europe and very little from Asia. With books quickly covered, the deal had an allocation breakdown of 35% UK, 25% Asia, 20% US and 20% Europe.
Most funds were said to be willing to hold the deal on an outright basis and remain keen to play upside in the tech sector. Year-to-date, SPIL has risen 17.5% from its NT$34.8 low.
Since 1999, SPIL has seen its market share double and retains some of the highest operating margins in the sector. Third quarter figures stood at 12.9% compared to an 11.2% margin at Amkor and 5.7% ASE.
The company last issued a CB in January 2002 when it raised $175 million via Morgan Stanley. This had a 15% conversion premium, a two-and-a-half year put option and 2.25% yield-to-maturity. With a credit spread o 320bp and 50% volatility assumption, it was priced with a bond floor of 89%.
