In a turbulent year for Thailand, CP Foods managed to bring a new structure to market, achieve aggressive terms and time the offering to perfection, raising US$290.4m from an exchangeable bond just three days before street protests brought issuance to a standstill.
Structured as Thailand’s first exchangeable bond, CP Foods avoided the need for early disclosure and a shareholder vote required to issue a convertible bond, meaning the issuer was able to come to market far quicker.
It scored a coupon of just 0.5% and exchange premium of 30%, the highest on record for a Thai equity-linked deal, thanks to some innovative features that gave comfort to investors.
The bond came with an irrevocable undertaking from sponsor Charoen Pokphand Foods to ensure that the issuer, a wholly owned subsidiary, had enough liquidity to meet its payments. This is equivalent to a keepwell deed on a corporate bond, and is thought to be the first time such an undertaking has been included in an equity-linked issue anywhere.
The joint bookrunners, Bank of America Merrill Lynch and Phatra Securities, also had to come up with a way to provide stock borrow for investors to hedge their positions in another first for Thailand. This was made more complicated on the issuer’s requirement to use the underlying shares for the borrow facility, which was also a new concept in Asia.
The issuer entered into a lending arrangement with BofA Merrill for 110m non-voting depositary receipts, which are used in Thailand to avoid breaching foreign-ownership rules, in the exchange property, CP All. In order to partake in the stock-borrow facility, investors had to hold their bonds in a swap agreement with BofA Merrill, ensuring that the number of bonds exchanged would never exceed the number of CP All shares on hand.
While bankers had been aware that it was possible to avoid Thailand’s lengthy disclosure requirements through the issuance of an exchangeable bond, instead of a convertible bond, CP Foods was the first to do it, reopening the Thai equity-linked market in the process. At the time, there had been no Thai equity-linked issuance since 2010 and no paper was outstanding.
A military coup happened within weeks of CP Foods’ new deal, but some investors had actually bought into it hoping for an event to trigger volatility. While the window for issuance closed for a while as the political situation developed, Bangkok Dusit Medical Group had followed CP Foods to the equity-linked market come September. However, Dusit used the convertible bond format, which required a stock exchange disclosure and shareholder vote, adding three months to its time to market.
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