Taiwan offers slim pickings for Asian ECM

Taiwan continues to provide virtually the only equities business for Asia''s primary markets, with the launch of a non-deal roadshow for Chunghwa Telecom and convertibles for D-Link and Gigabyte.

Grand Cathay Securities has led its first dollar-denominated convertible, with a $30 million rolling put issue for networking, data communications and digital electronics manufacturer D-Link. Priced Wednesday, the five-year deal was unusual for the incorporation of a discount rather than a premium to spot, with the conversion price set at NT$50 ($1.54), a 2.5% discount to the stock's NT$51 close in Taiwan.

Lead bankers, however, have preferred to use a 30-day average to the day before pricing, at which point the deal comes at a 10.7% premium to NT$45.17. Indeed, D-Link ranks as one of Taiwan's best performing companies so far this year, rising 83.85% to Thursday's close, compared to a 21.178% overall rise by the TWSE.

Other terms comprise an issue price of par, a zero coupon with annual puts, two-year hard no call, thereafter subject to a 135% hurdle, and annual downward re-fixes subject to an 80% floor. There is also a $10 million greenshoe.

Trading up to 105 within a day of launch, books were said to have closed four times oversubscribed with heavy demand from prop desks. Lead officials say that the main attractions of the deal comprise the company's strong credit ratios, including a liability to assets ratio of 45%, its steady sales growth and diversification into the US, India and China where it has major manufacturing plants.

"Although dotcom companies have been decimated, the companies which provide equipment for the internet are still sustaining demand for their products," one banker comments.

Established in 1986, D-Link operates under the brand name 'Building Networks for People' and aims to provide cutting edge technology at affordable prices to home PC market, small to medium business sector and workgroup computing environments.

Gigabyte Technology

Following the completion of pre-marketing, Nomura is preparing to launch a $100 million rolling put structure for motherboard manufacturer Gigabyte on Monday. Despite the volatility of global equity markets and a secondary market weakening of Taiwanese converts, the company has gone out with aggressive terms, albeit within the confines of a defensive puttable structure.

In particular, specialists cite an indicative premium of 14% to 19% on a stock which has already risen 90.75% so far this year, closing Thursday at NT$103. Some also highlight the secondary market widening of this yearÆs deals for Acer Communications & Multimedia, Yageo and Quanta Computer.

"The idea of a convertible is that investors should only participate in 20% of the downside and 50% of the upside, but in these instances, they are down 40%, as each issues trades down to its bond floor," says one. "All the yield-to-puts have widened out, with Acer now at 5.127% compared with its issue yield of 3.89% and Yageo at 5.961%, compared to 4.8% at launch.

"Investors are getting very nervous about the equity-linked as well as the straight equity market and will become more demanding about the terms attached to deals. They just don't want to take any risks at the moment and if they see a deal start to fall as it hits the secondary market, they tend to get out straight away, before it falls further."

Nevertheless, others believe that Gigabyte should go well and the prospective deal is already bid at par-and-a-quarter in the grey market. "WeÆre actually quite positive on the company," says one syndicate head. "Gigabyte is gaining more and more market share as the big US companies outsource their business. Rumours that Intel is about to either exit or vastly shrink its own motherboard manufacturing activities have given the stock a big boost."

Chunghwa Telecom

The state-owned telecoms operator slipped quietly back into the international equity markets on Monday, launching a global non-deal roadshow that finishes today (Friday). Keen to avoid inflating expectations, the company is said to primarily view the exercise as a means of keeping some momentum behind its planned $3.15 billion ADR. Guided by lead managers Goldman Sachs, Merrill Lynch and UBS Warburg, it also wants a platform to explain its story to global investors for the first time.

Domestically, however, the stock has continued to wilt, hitting an all time low of NT$62.5 yesterday (Thursday) before rallying slightly to close at NT$63.5.

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