Stats ChipPAC abandons bond buy-back

The company's majority-owner Temasek may re-launch the offer in September after failing to reach agreement with bondholders over the debt-swap.
On August 9, Stats ChipPAC announced that its tender offer for $150 million of 7.5% senior notes due in 2010 and $215 million of 6.75% senior notes due in 2011 was terminated because the ôfinancing condition has not been satisfiedö. Friday was the deadline for a proposed buy-back of the existing bonds which was to be financed partly by the issuance of new bonds and partly by bank debt.

The Singapore-listed company, which is majority-owned by Singapore sovereign wealth fund Temasek, intends to re-launch the offer in September, according to sources close to the deal. There is a limitation on restricted payments clause attached to the outstanding bonds which requires their early retirement before a special dividend can be paid to shareholders û in this case, mainly Temasek.

Back in June, Stats ChipPAC, Southeast Asia's largest semiconductor tester and packager, said it intended to sell senior notes to refinance existing debt, in a deal jointly managed by Credit Suisse and Deutsche Bank. The company met investors in a global roadshow towards the end of that month for what was billed as a ôbenchmark dollar bond offeringö. Proceeds from the sale and a $450 million credit facility, which is apparently now fully funded but in syndication, was to be used mainly to fund a proposed cash distribution to stockholders and a buy-back of $365 million worth of notes, it had said in a statement on June 19. The original offer was then amended on July 22 to allow more time to gain the approval of bondholders.

Clearly, more time is required. Sources close to the deal blame difficult and volatile market conditions in general, and the usual sleepy August when many investors are holidaying away from their desks. ItÆs hoped that investors will be fully focused after the summer break.

But it is also another example of the problems that Asian issuers with sub-investment grade credit ratings û Stats ChipPAC is rated BB+ by Standard and PoorÆs and Ba1 by Moody's Investors Service, both one notch below investment-grade û are coming across when trying to raise funds in bond markets where risk-averse investors prefer better-rated credits. The suspicion is that holders of Stats ChipPACÆs existing bonds insisted on a higher take-out premium and more generous terms on the new bonds than the borrower was willing to pay.

Investors are demanding big premiums to be persuaded to buy new bonds, particularly those rated below investment-grade. Bond sales denominated in dollars, euro or yen have fallen 48% to $19.9 billion so far this year compared with the equivalent period in 2007, according to data from Thomson Reuters. The year-long global credit crunch means that it is firmly a lendersÆ market while concerns about slowing global economic growth raise the risks of lower corporate profits in the region.

Temasek bought 83.1% of the shares of Stats ChipPAC in May last year, falling short of the 90% needed in order to delist the company from both the Singapore stock exchange and Nasdaq. Two months earlier it had launched a $1.6 billion bid for the 64.4% of the company that it did not already own. Temasek has since been frustrated in its objective by the refusal of some leading fund managers û including the UKÆs Marathon Asset Management û to sell their holdings.

Temasek's bid for Stats ChipPAC came amid consolidation in Singapore's technology sector, which analysts say is undervalued, while competition from rivals in China and Taiwan intensifies.
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