In a tough year for both equity and convertible bonds, pricing both securities successfully at the same time was not a simple task. For boldly executing concurrent trades with perfect timing, TPK’s US$466m combination is IFR Asia’s Taiwan Capital Markets Deal of the Year.
Taiwan’s equity market benefited from rising hopes for the technology sector this year, and the country emerged as a leading market for the issuance of convertible bonds during a subdued year for Asia’s equity-linked market. Completing either a convertible or straight equity financing, however, was far from easy.
TPK Holding, which makes touch-screen technology for the likes of Apple, had been trying to issue global depository receipts since September 2011, but was hampered by poor market conditions and the well-flagged intentions of shareholder Balda to cut its stake.
Since launching an offering of GDRs alone might have meant it had to sell at a big discount, TPK took advantage of its familiarity among equity-linked investors to combine the sale of GDRs with a concurrent CB. TPK raised a combined US$466m through the combined offering, generating enough price tension between the two parts to price each component at impressive terms. The equity tranche increased the liquidity of the stock, which in turn made the CBs more attractive.
This was the first concurrent offering of GDRs and CBs out of Taiwan since 2006, and selling the two parts side by side enabled TPK to obtain the tightest discount for a Taiwan GDR since 2010. This was despite a 40% rally in the company’s share price since the beginning of the year, and a jump of 3.8% from the time the deal was announced to its launch.
It also managed to secure a zero yield – the first Taiwanese issuer to achieve that in the current year – for its US$200m CBs, which printed at a low bond floor of 90.9, beating TPK’s previous low of 91.4. The greenshoe was later used in part to increase the issue size to US$230m.
The par/par CB priced at a conversion premium of 15%, the investor-friendly end of the 15%–25% guidance, with a tenor of five years and an investor put at the end of the third year.
The credit-spread assumption was 275bp, stock borrow cost was 5% and implied volatility was 25%–26%. Unusually for the Taiwanese market, no asset swap was provided with the deal. TPK itself had needed to offer asset swaps for 25% of its 2011 issue, although the take-up had been only around 1%.
Nevertheless, hedge funds were happy to come into the deal, with the book comprising a good mix of long-only and multi-strategy funds.
At the same time, TPK sold 17.6m GDRs at US$13.42 each, the low end of the US$13.42–$13.82 guidance, or at a 3.9% discount to the September 25 close. The GDR price was the reference level for the CB.
Asian accounts dominated the GDR offering,
while demand for the CBs was split fairly evenly between Asia and Europe, with some offshore US interest. In total, around 100 investors participated in the two parts of the deal, leading to multiple times coverage.
JP Morgan and Nomura were joint bookrunners on both issues. Proceeds will be used to expand plants, purchase equipment and procure raw materials overseas.
In a mixed year for primary convertible deals, improving on the terms of its April 2011 CB was a rare achievement for TPK.
The fundraising could have been launched earlier in the year, but the decision to wait for better market conditions paid off, allowing TPK to reap the benefits of an improved share price and better sentiment towards the industry sector, not to mention cementing its reputation as a smart issuer.
In combining both fundraisings into a concurrent offering, TPK gave itself the flexibility to lock in the best terms and maximise the issue size, and stands out as a worthy winner of IFR Asia’s Taiwan Deal of the Year.
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