Taiwanese bankers gear up for TFT LCD round 6

Three bumper financings are set to hit the market in the next couple of weeks as manufacturers look to upgrade again.

In January Chi Mei Optoelectronics Corp inked a mammoth $1.22 billion equivalent loan to finance the construction of its 5.5 generation plant. A few short months later and the three big Taiwanese thin film transistor liquid crystal display (TFT-LCD) manufacturers are looking to tap the market again.

This time the proceeds will be used to finance sixth generation fabrication plants as accelerating demand for notebooks and LCD TVs has increased the need for more flat screen panels. DisplaySearch, an industry research firm, has predicted that sales of LCD monitors are set to overtake their traditional cathode ray tube (CRT) counterparts in the second quarter of this year.

The firm suggests that manufacturers will be looking to invest almost $10 billion this year in new plants. Half of this will originate from Taiwan as the island nation continues to lead its rivals in expenditure in this capital intensive industry.

This charge for funds will be led by Chunghwa Picture Tubes, which has already awarded a mandate to Bank of Taiwan to lead a NT$30 billion ($900 million) facility. It will be the borrower's first trip to the market for a capex deal since it raised $550 million equivalent back in October 2002.

Appointing one arranger to conduct the syndication breaks away from the recent trend of employing numerous banks in this role. AU Optronics had nine with four bookrunners and Chi Mei mandated 13 and also selected four books, both following intense bidding wars.

The transaction will be split between a NT$23.7 billion ($710 million) seven year portion and a $200 million five year tranche. NT$ lenders will earn a margin of 73.5bp over the CP rate and banks funding in US dollars will be paid 70bp over Libor.

Arranger Bank of Taiwan has put together a list of 15 to 18 banks to invite into an expanded arranger group. The borrower will review the list and hand pick the banks it wishes to invite into the deal at this level.

These banks will join as sub-underwriters and will receive a combined underwriting and upfront fee of 37.5bp for NT$2 billion ($60 million) tickets. Once this group has been finalised the facility will be launched into general syndication.

Dealogic figures show that the past two blockbuster deals for both AU Optronics and Chi Mei Optoelectronics met with an overwhelming response to the market. Both deals were increased and this transaction features a greenshoe option allowing the deal to be bumped up to NT$33 billion ($1 billion) in the event of an oversubscription.

Despite this the deal is priced well outside the previous facilities - AU Optronics paid a top tier fee of 21bp and a margin of 63.5bp while Chi Mei was priced at just 12bp and 53bp. Market observers suggested that the generous fees offered were to ensure a successful syndication given the large supply, both present and future, of Taiwanese TFT LCD paper in the market and the sliding prices of panel display products worldwide.

The need to constantly stay on the cutting edge of technology has been further compounded by the recent news of the $2 billion tie up between number one producer Samsung and Sony Corp of Japan. In addition Chinese investment in the industry is steadily increasing, putting more pressure on margins and profits in the business.

With this in mind, both AU Optronics, the worlds number two manufacturer, and Chi Mei Optoelectronics are sounding banks to finance their respective sixth generation fabs. Bankers in Taiwan are eager to take a look at both these credits, but it is likely that they will wait on the outcome of this syndication before proceeding with their own fundraising plans.

The expanded arranger group will be completed in the next couple of weeks and general syndication will be launched by the end of March.