Sunplus GDR connects with investors

Taiwan''s largest IC design house has taken a first step towards its end goal of becoming a global player.
Books for a 17.5 million GDR offering were said to have closed yesterday (Thursday) four times oversubscribed. With UBS Warburg as lead manager, the company priced its combined primary and secondary deal within an indicative 0% to 10% discount range at $9.57 per GDR, securing an 8.28% discount to an underlying close of NT$169, or a 6.36% discount to a 30 day average of NT$165.53.

The $167.48 million deal comprised 10 million units of primary shares, where one unit equals two shares and 7.5 million units of secondary shares, with an additional 2.5 million unit greenshoe of old shares. Fees totalled 3%, with Barits Securities named as senior co-lead, SG Securities as co-lead and Capital Securities, Fuh Hwa Securities and Taiwan International as co-managers.

Sunplus chairman Chou-Chye Huang and Wayne Shen, the special assistant who has undertaken most of the company's investor relations work, say that the deal has achieved all of the company's goals. Shen comments, "We've been very successful in Taiwan over the past decade and for the last five years have achieved an annual compound growth rate of 33%. Now we want to become a much more international company and this issue represents a first step towards that goal. We intend to be a regular visitor to the international capital markets and we hope our deal will also give confidence to other companies hoping to follow suit."

Shen and Huang attribute their success to the company's diversified product portfolio, which has reassured investors at a time of slowing growth and high volatility The stock was also given a big boost recently on rumours that Sunplus will make integrated circuits for Hasbro subsidiary Tiger Electronics which has the merchandising rights for Harry Potter toys.

But as Shen emphasizes, "Our top selling product only accounted for 4% of sales during 2000 and our top client 10% of sales.”

Bankers concur. "Within the broad spectrum of Taiwanese companies, Sunplus is considered a safe bet," says one. "It is fabless and fleet of foot in being able to move quickly into new products and stay ahead of the game. Investors like the company's management, they like the space it's in and they like the growth story."

In terms of pricing, investors are said to have had a pretty clear idea of where they wanted the deal to price over and above day-to-day share movements. On the day of pricing, for example, the TWSE Index fell for the first time in four days, closing down 1.1%, while Sunplus itself was down NT$6, or 3.4%.

"On a fundamentals basis, NT$155 was the magic number," a banker comments. "In this respect, it makes any talk of a discount pretty fuzzy really since the stock is very popular among local investors and this means that it tends to trade limit up or down depending on whatever rumour happens to prevail in the market."

Asian demand was said to be the main momentum driver, led by one anchor order, while Europe provided a couple of sizeable orders, but was bulked out by demand to the order of $5 million per account. A total of 90 orders were filled.

"Europe gave breadth to the book, while the US provided about nine key orders," the banker continues. "We were expecting a lot of dedicated Taiwan funds, but were quite surprised to attract a much broader spread. About 70% to 80% of the book comprised new investors to the company and some of the large orders went into Pan Asian or tech funds, rather than Taiwan-specific funds."

What sign the completion of the deal gives to the rest of the lengthy pipeline remains open to interpretation. UBS Warburg officials argue that while success shows it is possible to complete a deal for the right company, it has to the right kind of company. "Investors are being very cautious," one concludes. "They’re either going for a degree of safety and migrating back to the old familiar names, or they’re being selective in their choices."

For Sunplus, completing a sale on better terms now than it would have been able to achieve last September when it first approached the market, must be extremely satisfying. At the that point, the TWSE was crashing to 18 month lows on the back of domestic political turbulence and sharp corrections on the Nasdaq, where the first of a host of profit warnings from the computer sector were starting to be made public. Consequently, Sunplus saw its share price slide from NT$170 to NT$155 in the space of a few weeks and investors demanded a discount of more than 10% to spot.

Compal Electronics, meanwhile, which has been pre-marketing a roughly $260 million DR offering via Goldman Sachs has decided not to proceed with the deal until after it reports its financial results at the end of April.

The company is hoping to sell 170 million shares, of which 70 million will comprise secondary shares. Bankers, however, say that is has ambitious targets of pricing close to par which would not be achievable in the current environment.
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