Wistron completes debut CB

Acer spin-off raises $120 million.

JPMorgan led a $120 million convertible for Taiwanese notebook manufacturer Wistron Corp on Monday. The transaction marks the capital markets debut for company, which represents the DMS (design, manufacturing and services) operations of Acer Inc and was spun-off last summer.

The five put two structures mirrors that of recent deals for Asustek and Nan Ya. Having marketed the transaction on an issue price of 100.5% to 101%, the lead priced the deal at 100.875% with a put option in year two at par and redemption at 98.702%, to yield minus 0.437%.

The conversion premium was marketed on a 28% to 33% range and priced at 30% to the stock's NT$29.3 close in Taipei. However, re-sets bring the effective premium down and fall after 12, 24 and 36 months subject to an 85% floor.

There is also a call option after year two subject to a 125% hurdle and an unusually large number of co-managers: Citigroup; Grand Cathay; ING and Nomura.

Underlying assumptions comprise a bond floor of 92.75%, implied volatility of 32% and theoretical value of 101%. This is based on a credit spread assumption of 120bp over Libor, zero dividend, 5% borrow cost and 36% volatility assumption.

Observers say Wistron has an implied credit rating spanning low triple B to high double B and undoubtedly benefits from the halo effect of the Acer group. Because the group has never borrowed in the domestic capital markets, banks also have a lot of free credit lines.

However, most accounts are said to have been happy to take the deal on an outright basis, with asset swaps accounting for about 25% of the primary book. Orders were capped around the $12 million to $15 million mark because the deal is small and market conditions strong.

About 50 investors were allocated after books closed five-and-a-half times covered, with the 10 largest all allocated about $15 million. By geography, the deal has a split of 60% Europe and roughly 20% each to Asia and the US.

Since it listed last August, the stock has come down from a high of NT$35.53 to a low of NT$26.4 in mid-December, before bouncing back 7.33% during 2004. Supporters say the company was hit harder than most by a downturn in the tech sector during the late third and fourth quarters because it is still building a brand name.

It currently ranks as Taiwan's fourth largest notebook manufacturer behind Asustek. The former priced its $321.6 million convertible at the beginning of January with a par issue price, two year put and 98.5% redemption price to yield minus 1%. The deal had a conversion premium of 32.5%.

Based on an implied BBB rating, one to two notches higher than Wistron, the transaction was valued on a credit spread of 90bp over Libor, zero dividend, zero borrow and 30% vol assumption to give a bond floor of 92%, implied vol of 38% and theoretical value of 96%. It is currently trading at 103.25% to 104%.

Wistron management predict that the $700 million market cap company will grow strongly in 2004. Shipments are forecast to expand 75% from two million to 3.5 million as the company gains new orders from its five major clients: Acer; Dell; Fujitsu Siemens; HP and IBM. Likewise, revenue is forecast to increase 40% from NT$77.59 billion ($2.32 billion) in 2003 to NT$108.8 billion in 2004.