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Taiwan Cement’s new GDR/CB combo coming sooner than later

A much-anticipated USD 900m global depositary receipts plus convertible bonds combo offering by Taiwan Cement [1101:TW] will likely come this month, although chances of a November launch should not be entirely dismissed, said two sources familiar with the deal.

The cement products maker’s share price has tumbled roughly 6.8% over the past few weeks, from TWD 35.50 in mid-September – around the time it submitted the deal filing to Taiwan’s Securities and Futures Bureau – to close at TWD 33.10 on Monday (2 October), when the regulator approved the transaction.

That fall is much steeper than the benchmark stock index’s 2% decline over the same period, as investors prepared themselves for the deal.  

A falling share price is not surprising for such a well-flagged transaction, said the first source.  

A lower share price, he said, may actually help Taiwan Cement slam a heftier premium on the CB, and while the GDR proceeds may be less than targeted, the differential should remain manageable as long as the stock trades around the current level.  

But when asked if there would still be a deal should the stock fall below TWD 30, he declined to comment. 

A third source, who is involved in the transaction, expects the deal to happen around the 10 October national holiday in Taiwan.

The second source agreed, while the first source said it will certainly launch in October-November, although there is a higher chance the fundraising will hit the market this month.

In September 2022, Taiwan Cement launched a USD 425m GDR deal a day after the SFB’s approval. In November 2021, the company kicked off a USD 800m CB within days after regulatory approval.

In the regulatory filing for the latest fundraising, Taiwan Cement has proposed to issue 316m-395m shares in the form of GDRs, with the aim of raising up to USD 400m. The filing shows a reference issuance price at TWD 32.2 for the GDRs, each of which will be backed by five common shares.  

Citi and UBS are arranging the GDR sale.  

The USD 500m zero-coupon five-year CB will come with a back end yield up to 3%, a two or three-year put and a call option two to three years after issuance, subject to a 130% hurdle, the filing shows. The reference conversion price in the filing is TWD 42.88, 29% above the stock’s Monday close.  

Citi, DBS and UBS are arranging the CB.  

The third source said the CB's credit spread from local lenders should be in the 110 basis points to 140 basis points band, while a fourth source, also involved in the deal, said it would be around 120 basis points.

Both the first and second sources said the GDR discount shouldn’t deviate far from that offered by Taiwan Cement in its 2022 offer.  

Taiwan Cement’s 2022 GDRs were marketed at a 5.1% to 7.8% discount (USD 5.05-USD 5.20) and priced at USD 5.06 each. Its CB printed in 2021 was priced at a 30% premium.  

The second source said there might be limited room for the GDR discount to widen further, when taking into account the stock’s recent declines.