International Financing Review April 4 2020 11For daily news stories
@ visit http://www.ifre.comBanks stuck with
21% of AMS
Equities Rights issue was doomed from the startBY ROBERT VENESBanks now own more than 21%
of AMS after the Austrian sensor
maker’s SFr1.75bn (US$1.8bn)
RIGHTSûISSUEûTOûPART
lNANCEûTHEû
acquisition of Germany’s Osram
mOPPED
Once shareholder take-up of
ûWASûCONlRMEDûONû4UESDAY û
a rump offering of 72.4m shares
was launched after the close but
there was little chance of
success. Pricing of a rump
cannot be set below the rights
issue price – SFr9.20 in this
instance – and that meant
attempting a SFr666m placing
with a maximum discount of
just 3.56% to that day’s close.
In total, 15m shares were
placed at SFr9.20, leaving the
underwriters with 30% of the
fundraising, equating to 21% of
the whole company. The banks
will pay SFr528m for 57.39m
shares.
Although all eight syndicate
banks are on the hook, the
underwriting varies
dramatically. Joint global
coordinators HSBC and UBS own
more than 70% of the stick
position, with underwriting
splits of 34.3% and 36.8%,
respectively.
The balance is spread across
Bank of America with 8.5%,
Commerzbank with 6.5%, Morgan
Stanley with 4.5%, Citigroup 3.8%,
Erste Group 3% and Deutsche Bank
2.5%. Erste is lead manager,
while the rest of the banks are
bookrunners.
The outcome was likely
within days of setting terms for
the capital increase. On March
11, pricing was set at SFr9.20, a
35% discount to the theoretical
ex-rights price, ie, where shares
should be trading post-rights
issue, of SFr14.15.
Typically, a 35% discount to
TERP would provide enough
headroom and the terms were
set after equity markets had
collapsed in response to the
coronavirus pandemic. By thetime pricing was set, the stock
had already fallen by around
half in a month.
Shares fell below the issue
price on just the third day of
subscription, by which time it
was too late to restructure.CAREFUL COORDINATION
The banks’ stick represents
more than 16 days’ trading
(based on the previous issued
share capital).
HSBC and UBS have entered
into a coordination agreement
to secure an orderly sell-down of
their positions. A banker
involved in the process said it
would be disposed of over time,
with an accelerated sale far less
likely. Another banker involved
said he expected some of the
other banks to join the
coordination agreement, though
those with the smallest
positions are likely to operate
independently.
An added complication is that
THISûISûONEûOFûTHEûlRSTûMAJORû
failed rights issue in Europe
since criminal cartel charges
WEREûlLEDûAGAINSTûBANKSûINû
Australia over how they
managed a stick following a
capital increase by ANZ.
In that case, which is ongoing,
the underwriters followed
standard market practice by
coordinating selling to minimise
damage to ANZ’s share price.
“There is a lot more done to
make sure we understand what
is required of us,” said one of the
bankers. “A lot of thought goes
into it.”UNWANTED
With markets so volatile, long
underwriting periods will need
to be managed carefully in order
to avoid more cases where banks
end up as unwanted
shareholders. Some country
regulators are making it easier
to raise money on an accelerated
basis without having to offer
SHAREHOLDERSûTHEûRIGHTûOFûlRSTû
refusal, which is slow. the chance to cash in before the
shares go lower again,” said a
syndicate banker.
Before its deal was launched,
Celltrion’s stock was up 9.4%
this year after rallying 30% since
March 23, when it said it was
accelerating development of an
antiviral treatment for Covid-19.LIFE OR DEATH
Some companies, on the
other hand, need cash to
survive. Webjet, whose business
was severely hit by travel
restrictions worldwide, raised
funds to cover operational costs
and capital spending until year-
end. Its shares have plummeted
71% this year as of last Thursday.
Alongside the fundraising,
7EBJETûISûDEFERRINGûITSûlRST
HALFû
dividend, slashing its workforce
and cutting board and executive
pay by 60%.
IDP Education is also using
the funds raised to strengthen
ITSûBALANCEûSHEETûANDûlNANCIALû
mEXIBILITYûASûITSûMAINûBUSINESSûnû
English-language testing – has
been affected by travel
restrictions and government-
mandated lockdownsworldwide, including in India,
IDP’s largest testing market.
A weak Australian dollar
helped the transactions as
foreign investors looked for
deeply discounted assets. The
Australian dollar crashed below
53ûFORûTHEûlRSTûTIMEûSINCEû
THEûûlNANCIALûCRISISûEARLIERû
this month, touching a 17-year
low of US$0.55 on March 19.
After rebounding, it dipped
below US$0.61 again last week.
53ûPRIVATEûEQUITYûlRMû"AINû
Capital, for example, bought a 6%
stake via Webjet’s placement. It
has also committed to sub-
underwrite the retail tranche of
the entitlement offer, equal to a
further 10% of the company.
“At turbulent times the market
can be opportunistic, not only for
issuers but also investors.
Investors look for wider discounts
to the already severely hit share
prices, but they should be ready
to absorb the risks as it is not the
same situation as before Covid-
19,” said an ECM banker.
“Whichever way you approach
the market, both parties have to
act very quickly as the window
could be really short.” 72% in morning trading. Its
shares last traded at HK$1.
(US$0.25), down 54% from
Thursday’s close, while the cash
price of its two outstanding
dollar bonds fell more than 25
points. Luckin, on the other
hand, does not have any
outstanding straight bonds.
CAR’s 6.00% bonds due 2021
slumped about 29 points, and
were last quoted at 47/52, while
its 8.875% bonds due 2022 were
quoted at 33/38, down around 27
points, according to a trader.
4HEREûWEREûACTIVEûTWO
WAYûmOWSû
with real money selling and some
hedge funds bargain hunting.
Luckin suspended COO Jian
Liu and employees reporting to
him following initial
recommendations from a
special committee, which was
appointed to investigate issues
INûITSûlNANCIALûSTATEMENTSûFORû
THEûlSCALûYEARûENDEDû$ECEMBERû
31 2019.
Earlier this year, short-seller
Muddy Waters shorted the
stock, citing a report alleging
THATû,UCKINûFABRICATEDûlNANCIALûand operating numbers from
the third quarter of 2019.
Moreover, Liu held positions
at CAR from 2008 to 2015 and at
AFlLIATEû5#!2ûFROMûûTOû
2018 before he joined Luckin,
while E&Y is the auditor for
both Luckin and CAR, according
to a note from Deutsche Bank.
According to Deutsche Bank,
#!2ûCONlRMEDûINûAûCALLûTHATûITû
had Rmb2.7bn–Rmb2.8bn of cash
on hand at end-March 2020,
which can be used to repay Panda
bonds puttable in April. Plus,
management said that CAR
maintains a good relationship
with banks and received a
Rmb500m new facility last week.
Deutsche Bank said it does not
see CAR as a high default risk in
2020 if its “balance sheet is real”.
A prolonged trading
suspension could trigger an event
of default on CAR’s syndicated
loans. CAR has two US$100m
facilities outstanding, both three-
year loans arranged by Bank of
China (Hong Kong) in June 2018
and in November 2019, according
TOû2ElNITIVû,0#ûDATA 4 IFR Top news 2327 .p 2 - 12 .indd 11 03 / 04 / 2020 19 : 29 : 30