Asia-Pacific Structured Equity Issue: CP Food’s US$290m exchangeable bond into CP All
In a turbulent year for Thailand, CP Foods managed to bring a new structure to market, achieve aggressive terms and time the offering to perfection, raising US$290.4m from an exchangeable bond just three days before street protests brought issuance to a standstill.
Structuring the deal as Thailand’s first exchangeable bond allowed CP Foods to avoid the need for early disclosure and a shareholder vote required to issue a convertible bond, meaning the issuer was able to come to market far quicker.
The company scored a coupon of just 0.5% and exchange premium of 30%, the highest on record for a Thai equity-linked deal, thanks to some innovative features that gave comfort to investors.
The bond came with an irrevocable undertaking from sponsor Charoen Pokphand Foods to ensure that the issuer, a wholly owned subsidiary, had enough liquidity to meet its payments. This is equivalent to a keepwell deed on a corporate bond, and is thought to be the first time such an undertaking has been included in an equity-linked issue anywhere.
The joint bookrunners, Bank of America Merrill Lynch and Phatra Securities, also had to come up with a way to provide stock borrow for investors to hedge their positions – another first for Thailand. In a highly unusual move, CP Foods wished to use the same shares for both the borrow facility and the exchange property. At issue the conversion property was about 180m shares, of which up to 110m were offered for borrow.
In order to partake in the stock-borrow facility, investors had to hold their bonds in a swap agreement with BofA Merrill, ensuring that the number of bonds exchanged would never exceed the number of CP All shares on hand.
While bankers had been aware that it was possible to avoid Thailand’s lengthy disclosure requirements through the issuance of an exchangeable bond, instead of a convertible bond, CP Foods was the first to do it, reopening the Thai equity-linked market in the process. At the time, there had been no Thai equity-linked issuance since 2010 and no paper was outstanding.
A military coup happened within weeks of CP Foods’ new deal, but some investors had actually bought into it hoping for an event to trigger volatility. While the window for issuance closed for a while as the political situation developed, Bangkok Dusit Medical Group had followed CP Foods to the equity-linked market come September. However, Dusit used the convertible bond format, which required a stock exchange disclosure and shareholder vote, adding three months to its time to market.