As Tech Warms Up, Taiwan Finance Gets Hot

Companies are rushing to sell big convertible-bond issues

In the topsy-turvy world of high tech, there are times when you're hot and times when you're not. The past two years have been a decidedly cool period for tech, and nowhere more so than Taiwan, where technology drives the economy. That means it has been a difficult spell for raising the gobs of cash that tech companies need to invest in innovation. So with the U.S. economy showing signs of rebounding and with Taiwanese tech stocks on the rise, the island's entrepreneurs have been quick to take advantage.

One of the first to move was Miin Wu, chairman of memory-chip maker Macronix International Co. (MXICY ) Soon after his share price started climbing in October, Wu was readying a tranche of convertible bonds--and in January, Macronix raised $170 million from overseas investors. That won't cover all of Macronix' needs, but it's a start. "Whenever there is an opportunity, we will raise money," says Wu.

Macronix is just one of many Taiwan tech outfits jumping into the capital markets. Notebook-PC king Quanta Computer Inc. hopes to raise $220 million. Hon Hai Precision Industry Co., Taiwan's top manufacturer of PC peripherals, plans to collect $690 million. Even some nontech companies are getting into the act. Late in February, Taiwanese regulators approved an application from Fubon Financial Holding Co. to raise $500 million. In January and February, Taiwan companies raised $800 million. And Taiwan's Securities & Futures Commission has approved an additional $1.6 billion for later this year.

The money is needed to boost investment as demand for Taiwan's tech output picks up. Macronix will invest in a major plant in Hsinchu, Taiwan's Silicon Valley. Ritek Corp., a top producer of recordable compact disks, intends to spend the $175 million it raised in January to expand into higher-margin products such as recordable DVDs.

Taiwan tech execs have always preferred venture capital and stock offerings to debt. So their entry into the debt market comes with a hedge. The preferred vehicle is the convertible bond--debt that the buyer can swap for equity if the share price reaches a certain level. Macronix and other companies believe that their stocks will continue to rise, which means investors will convert bonds to equity and so wipe out any obligation for the issuers to repay the principal.

Investors like the terms of the wager. Taiwan chipmaker United Microelectronics Corp. late last year raised $302 million selling convertibles in the second-largest such deal in Taiwanese history. The convertible price--the level at which investors can switch the bonds into equity--was 86% above the price UMC's shares commanded at the time. But that did not frighten away investors: The deal was 17 times oversubscribed. "There is a lot of appetite for paper," says Tse-Ern Chia, director of convertible research at Merrill Lynch & Co. in Hong Kong.

All this activity is not without risk. To avoid being caught in a debt traffic jam, Lin Wen-chung, chief financial officer at semiconductor packager Siliconware Precision Industries Co., rushed to get his company's bond issue ready in a matter of weeks. "If too many companies go to the market at the same time, it's not good timing for our company," he says. "So we decided to go as early as possible." It worked: Siliconware Precision pulled in $200 million in January.

Some companies are resisting the bond stampede. Dynamic random-access memory (DRAM) chip manufacturer Nanya Technology Corp. has plans to issue some $600 million in new shares, which will help pay for a factory producing cutting-edge 12-inch wafers rather than the 8-inch variety. "Last year, there were a lot of people worried that they would have to pay back their convertible bonds because [share] prices were dropping like crazy," says Executive Vice-President Charles Kau.

That's not deterring Bob Wong, chairman and president of CMC Magnetics Corp. Like Ritek, CMC makes recordable CDs and DVDs, and this month it raised $100 million by means of convertible bonds. CMC isn't finished: "We need to buy more equipment. We need more money," says Wong, who expects to return to the market before long. With so many Taiwanese eager to cash in on a bull market, he'll have lots of company.

By Bruce Einhorn in Hong Kong

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