Bankers are anticipating one of the busiest periods of the year for Taiwan with at least two benchmark deals set to price this week and at least three next week.
First off is Nan Ya Technology, which began roadshows yesterday (Monday) for a concurrent GDR and exchangeable offering. The roughly $600 million deal has a relatively crowded syndicate line-up with UBS acting as global co-ordinator alongside Goldman Sachs as joint bookrunner on the GDR and Morgan Stanley as joint bookrunner on the exchangeable.
For the GDR, which represents a debut issue for the company, there will also be three joint-leads comprising ABN Amro, Citigroup and Morgan Stanley. On the exchangeable, ABN Amro, Citigroup and Goldman have joint-lead status, while Daiwa SMBC, Grand Cathay and Yuanta Securities will be co-managers on both.
The GDR has a base deal size of 400 million all new shares, representing 11.4% of the company's enlarged share capital. There is also a 33 million share shoe of secondary shares and a ratio of 10 shares per DR.
The deal is being marketed at a discount of up to 12% to spot. Should the deal price flat to Nan Ya's current share price of NT$28.4, proceeds could total $357 million post shoe.
The exchangeable from Nan Ya Plastics into Nan Ya Technology comprises a $200 million offering size, with a $40 million shoe.
Indicative terms show a five-year, zero coupon, negative yield structure. The exchange premium is being marketed at a range of 32% to 37% over the DR strike price and there is a call in year two and also a put in year two at a price of 99.5% to 98.5%. Redemption is being marketed at 98.76% to 96.31%, equating to a negative yield to put of minus 25bp to minus 75bp.
On completion of both parts of the deal, Nan Ya Plastics will see its 50% stake in Nan Ya Technology diluted to 44% pre shoe and 38% post shoe.
Year-to-date, Nan Ya is up 37.2% and according to analysts is currently trading on a price to 2002 book valuation of roughly 2.07 times. Most observers believe the GDR will need a comfortable discount, as there is still considerable uncertainty whether the current rally in DRAM prices is sustainable over the medium-term, or at the very least will be subject to some profit taking.
However, analysts are broadly positive about sector fundamentals with most predicting further upswings of 5% to 10% in contract prices over the next month as inventories are re-stocked in anticipation of the third quarter's traditional peak demand. Nan Ya is also favoured by a number of analysts because it is the largest Taiwanese DRAM manufacturer, with the lowest cost per chip and has the most advanced capabilities for DDR 400, which is expected to become the mainstream chip by the end of the year.
Pricing is scheduled for Friday following roadshows in the UK on Wednesday and New York and Boston on Thursday. Bankers will be hoping that demand for the GDR and exchangeable will feed off each other. Yet while the deal is being run as a concurrent offering, both sides are independent of each other and, therefore, pricing of the GDR will not be contingent on pricing of the exchangeable and vice versa.
Non-syndicate bankers say the next deal on the launch pad after Nan Ya should be TSMC, which is expected to come this week via an accelerated book build. Goldman Sachs and Merrill Lynch are joint bookrunners for the offering, which will comprise a sell-down by the National Development Fund, with an additional small block of shares from TSMC management.
The government's annual divestment in the foundry giant has developed a standard format and this year's offering has a filing for 79 million ADS units, with an 11 million unit greenshoe. With a ratio of five shares per unit, this means the deal could raise up to $796.4 million if it is priced flat to yesterday's closing price of NT$61.
Traditionally TSMC management and government officials seek to attract as many new investors as possible to the stock. A successful deal is also normally a function of how well the ADR premium holds up in the run-up to pricing. At Asia's close yesterday, it was being quoted at a roughly 20% premium to the underlying.
The stock was also one of the chief beneficiaries of an announcement that the government is scrapping a $3 billion limit on the value of local stocks held by foreign investors. It climbed 6.3% over the course of the day and is currently up 54.65% on the year.
At this level, TSMC is trading at about 3.6 times 2003 book compared to a historic low of 1.9 times in August last year when the stock dropped to NT$32.31. The last government divestment was completed in February 2002 when $871 million was raised at 4.7 times 2002 book.
Similar to DRAM, analysts have a cautiously optimistic view of a sector where utilization rates have climbed back from 67% in the first quarter to over 80% in the second.
The third large offering in the immediate pipeline is the government's long awaited divestment in Chunghwa Telecom. Currently in the middle of roadshows, the deal is scheduled to price next Tuesday under the lead of Goldman Sachs (global co-ordinator), Merrill Lynch and UBS.
Unlike spring 2001, when the government first tried to sell an ADR, it appears to have been far more realistic this time round both in terms of the number of shares it intends to sell and at what price. Similar to 2001, one of the chief selling points of the deal is its dividend yield of roughly 7.5% to 8.5%, among the very highest of any telecom stock in Asia.
Initially the transaction had been expected to comprise 13.8% of the company's issued share capital, but it has now been cut down to a more manageable 7.8% stake pre shoe, with the potential to lift the deal size if demand allows.
It is also being marketed under a fixed dollar price range of $13.33 to $15.32, which equates to a local price of NT$46 to NT$53. At the most aggressive end of the range, this represents a premium to the stock's NT$51.5 close yesterday. However, this is solely a function of the stock's trading levels when the indicative range was agreed upon rather than any lingering ambitions to price the ADR at a premium.
The government is said to have accepted that the deal will only get completed if it comes at a discount to spot and at the bottom end of the range, it would price at a 10.7% discount. Based on the deal's SEC filing for 75 million ADS units (750 million shares), the transaction will raise $1.12 billion if it prices flat to yesterday's close and $1.5 billion if the greenshoe is included.
Bankers also believe that next week may see the launch of competing deals relating to TFT-LCD manufacturer AU Optronics. Deutsche Bank and Goldman Sachs have the mandate for a $250 million convertible by AU Optronics itself, while Lehman Brothers and Morgan Stanley have a $200 million exchangeable mandate for UMC into AU Optronics. Both are awaiting SFC approval.
Deals, which have already received SFC approval include: a GDR issue for Quanta Computer led by Morgan Stanley and UBS; a roughly $44 million follow-on offering for Ambit Microsystems led by Goldman Sachs; a $200 million convertible for Yageo Electronics led by JPMorgan and; a $100 million convertible for Universal Scientific Industries led by Lehman Brothers.
Those awaiting SFC approval include: a $123 million GDR for Benq, which has shortlisted Goldman Sachs and Nomura; a $600 million to $1 billion offering for Cathay Financial led by JPMorgan; a $250 million convertible for Chunghwa Picture Tubes; a $160 million convertible for Cathay Real Estate led by JPMorgan and; a $200 million convertible for Delta Electronics led by Goldman Sachs.
Behind these deals, mandates are also in the process of being awarded by: Evergreen Marine, which is believed to have already chosen Morgan Stanley for a $150 million convertible; Hon Hai Precision, which is said to have shortlisted banks for a combined GDR and convertible for up to $600 million; ProMos, which has said it hopes to raise up to $300 million via a GDR and convertible and Far Eastern Bank, which wants to raise $150 million via a convertible.