Taiwan Glass Industrial Corp beat an uncertain market environment yesterday to raise $300 million from a three-year convertible bond, thanks to the availability of asset swaps to cover the entire deal.
The CB comes fewer than two weeks after another Taiwan-based company, Solar Applied Material Technology, raised $115 million from a five-year deal with a three-year put, and increases the amount raised by Taiwan issuers in the Asia ex-Japan CB market this year to $2.3 billion, or 15 percent of the total issuance.
The deal attracted interest both from investors and domestic banks because of the fact that Taiwan Glass is an industrial company, as opposed to yet another tech-sector issuer. While headquartered in Taiwan, it has about 60 percent of its business in China where it ranks as the largest general glass manufacturer. Its products range from float glass used in the construction and auto industries, among others, to fibre glass and photovoltaic glass for solar panels. The company is also in the process of expanding upstream by setting up a production facility for soda ash, which is a key raw material for making glass. The plant, which is located in China's Jiangsu province, is scheduled to begin commercial production in the first half of 2012, according to the company's website.
Taiwan Glass will use the proceeds from the CB to buy raw materials and to fund overseas investments.
The CB came with a zero coupon and zero yield, which is almost routine for Taiwan issuers these days, but at 26 percent to 30 percent, the conversion premium was a bit more modest than on most other Taiwan transactions this year. One exception is Asia Cement, whose $172.5 million deal in early June came with a premium between 20 percent and 25 percent. Following strong demand, Asia Cement eventually fixed the premium at 24.5 percent. The final premiums on other Taiwan CBs this year have ranged from 28 percent to 39 percent.
Taiwan Glass fixed its premium at the investor friendly end, or 26 percent over yesterday's record high close of NT$48.80. This gives a conversion price of NT$61.49. The stock has been on an upward trend since it fell below NT$15 at the height of the financial crisis in October 2008 and in the past 12 months it has gained 80 percent, including a 3.6 percent rally yesterday. And investors were seemingly willing to bet it can continue to gain.
According to a source, hedge funds accounted for about 60 percent of the demand with outright investors making up the rest. Most of the demand, some said as much as three-quarters, also came from Asia, while most of the remainder was generated out of Europe. There was little interest from offshore US investors, although to be honest they weren't given much of a chance since the order books closed at 6.30pm Hong Kong time. By that time the deal had been open for a bit more than three hours and the source said the bookrunner was unwilling to keep it open any longer given the volatile market conditions and the fact that sentiment remains very headline-driven.
However, by then the deal had already attracted close to 50 investors and the bookrunner likely saw little chance that it would be able to move up the premium. Particularly since the CB had been quoted slightly below par in the grey market since shortly after launch. After the deal was priced, the bonds were quoted at 99.5 to 100.
The deal was marketed with a credit spread of 160bp over Libor. As noted, this was supported by asset swaps for 100 percent of the deal that were provided by domestic Taiwan banks. The bonds also came with full compensation for cash dividends, but hopes that there would be some stock borrow available didn't really materialise. Hence, investors ended up using a 5 percent stock borrow cost in their models.
At the final terms, this resulted in a bond floor of 92.5 percent and an implied volatility of 27.3 percent. On account of the short three-year maturity, the CB has no put and no call.
The deal was led on a sole basis by Standard Chartered, which is particularly interesting since the bank lost its global head of equity-linked origination and two other members of its CB team just over a month ago. While Standard Chartered was mandated before their departure (at the end of May), several other banks had been trying to get on the transaction as well and the fact that Taiwan Glass chose to stick with Standard Chartered as the sole arranger says a lot about its confidence in the UK bank's overall franchise.
For now, Standard Chartered's CB desk is led by Barton Lee, a director, with the support of one associate, but the bank is said to have hired one other CB banker who will come on board in August.
Nathan McMurtray, the former head of equity-linked at Standard Chartered, and his two colleagues, Parekh and Susanne Schroeter, are joining Deutsche Bank to help rebuild an equity-linked franchise that has been slipping in the league tables for public deals since 2006, when it ranked top.