Malaysia's first private sector equity-linked bond issue since 2010 has boosted expectations that the country's convertible market may eventually reopen.
Top Glove Labuan earned US$200m from the sale of bonds exchangeable into TOP GLOVE CORPORATION parent company shares last Wednesday. Top Glove Corp is the EB's guarantor, the proceeds of which will be used to refinance the debt of the listed parent company.
It was organized by a special purpose vehicle incorporated in the territory of the island of Labuan in Malaysia, allowing the debt to be distributed to foreign investors through a streamlined mechanism requiring fewer filings than the majority of the country's transactions.
In the equity-linked market, the state-owned investment firm Khazanah has been the only successful Malaysian player since 2010. A Khazanah EB in Tenaga Nasional in 2014 was the last equity-linked transaction with a Malaysian underlying.
We will not go back to the heydays of the CB market in Malaysia before the global financial crisis, but there is a decent chance that this outcome will encourage many first time issuers," said an ECM banker away from the deal.
He added that his bank was collaborating in Malaysia with two possible first-time CB issuers. Top Glove, as a first-time issuer, offered investor-friendly terms.
The five-year placement of three EB was priced at the top of the coupon ranges of 1.5 percent-2 percent and 3.75 percent yield-to-maturity. The exchange premium was set at a 20 percent-28 percent range at the bottom.
The term sheet stipulates that stock borrowings of up to 52,6 million shares will be made available until at least 1 March 2022.
In the contract, which was covered two times, about 40 accounts participated. The institutions of Longonly took 40 percent to 45 percent of the paper. 60 percent of the offer was made by Asian investors and 40 percent by European investors.
A banker on the transaction said the issuer did not exercise the same-day upsize option of US$50 m as it did not want to add more hedge funds into the deal.
In the secondary market last Thursday, the EB traded comfortably at 100.0-100.2, while Top Glove shares slipped 1.4 percent to M$5.10. The Malaysian ECM, which has remained muted since the election of a new federal government last May, will be boosted by increased equity-linked activity.
From the first quarter, restaurant operator QSR Brands has pushed back its up-to-US$500m IPO to April and May, while poultry producer Leong Hup International, which aimed at launching its US$600m IPO in March, has not signed the schedule.
In the pipeline, home improvement retailer Mr. DIY is preparing an IPO of at least US$500m later this year, funded by private equity company Creador. The credit spread was assumed at 300bp for the Top Glove EB, the cost of stock borrowing at 1%, the bond floor at 94.9, and implied volatility at 15.1 percent.
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