The Reg S 10-year deal was priced at 99.546% with a coupon of 3.375% to offer a yield of 3.429%. This represented a spread of 157bp over the US treasuries, or at the tight end of the final price guidance of 160bp (+/- 3bp). The bonds further tightened by 3bp in the secondary market in the afternoon of April 15, albeit they were somewhat weaker on a cash price basis at 99.479 versus re-offer.

 

There were certain things about the transaction that made pricing a little bit tricky for investors, as a banker familiar with the deal points out. One of them is the structure as the bonds were issued through a special purpose vehicle and guaranteed by the group’s four main operating entities at 25% each. “This is a structure not usually seen by investors,” the banker notes.

 

The bonds were issued through Formosa Group (Cayman) Limited and the four operating entities are Formosa Plastics Corporation, Nan Ya Plastics Corporation, Formosa Chemicals and Fibre Corporation and Formosa Petrochemical Corporation.

 

Also, the proceeds will be used for capital expenditures, primarily for the construction of a steel plant in Vietnam, which is outside of the group’s traditional petrochemical business in Taiwan.

 

Formosa Plastics, rated BBB+ by Standard & Poor’s (S&P), announced the transaction before Easter and went on the road to meet with investors in Tokyo, Singapore, Hong Kong and London. The group, which tapped the New Taiwan dollar bond market for funding, is an interesting name from the investors’ perspective as it is such a large conglomerate. And according to the banker, it was a fairly complex process for many investors to value the group.

 

Based on a S&P report, Formosa Plastics was compared with Reliance Industries and PTT Global Chemical. Reliance has a similar S&P rating of BBB+ and its outstanding 10-year bonds were trading at treasuries + 196bp or a G-spread also of 196bp. PTT Global is rated BBB by S&P and its 10-year bonds were trading at treasuries + 152bp, or a G-spread of 171bp. “Clearly, it was at a significantly wider level where the Formosa Plastics bonds were priced,” the banker says.

 

Looking at the other Taiwanese names, Advanced Semiconductor Engineering, the last Taiwanese issuer to tap the US dollar bond market in July 2014 and rated BBB by Fitch Ratings, has its bonds trading at treasuries + 182bp, which is G-spread of 172bp.

 

The arrangers opened the order book in the morning of April 14 with an initial price guidance of 180bp area and attracted a strong response from the market with the total demand amounting to US$5 billion from 310 accounts. This enabled Formosa Plastics to revise the final guidance to 160bp area (+/- 3bp), eventually pricing the deal at the tight end.

 

In terms of geographic distribution, 83% of the bonds were allocated in Asia and 17% in Europe. Fund managers accounted for 60% of the paper, banks 30%, insurance companies 7% and private banks 3%.

 

Bank of China (Hong Kong) and HSBC acted as the joint global coordinators for the transaction, as well as joint bookrunners and lead managers, along with ANZ and Mizuho Securities.