Top Glove prices inaugural exchangeable bonds

The transaction by this large glove manufacturer elicits numerous commercial advantages, including lower loan costs, diversifying funding sources and a hedge against export risks

The world’s largest glove manufacturer, Top Glove Corporation of Malaysia, accessed the international capital markets for the first time as it priced on February 20 its maiden exchangeable bond amounting to US$200 million.

The five-year Reg S deal was priced at par with a coupon of 2% per annum and a yield-to-maturity of 3.75%. The coupon rate was determined after taking into consideration, among others, the prevailing market conditions on the date of pricing and investor demand during the book building exercise.

The bonds include an exchange option that enables the bondholders to exchange their bonds for the company’s shares at an initial exchange price of 6.20 ringgit (US$1.52) per share. This represented an exchange premium of 20% above the closing price of 5.17 ringgit on the date of pricing. A stock borrow of up to 52.6 million shares will be made available by the deal arrangers until at least March 1 2022.

The transaction marked the first exchangeable conventional bond out of Malaysia after almost a decade. It was priced through an accelerated book building process and was well-received by investors across Asia and Europe.

Proceeds from the bond offering will be used to refinance the existing foreign currency borrowings of Top Glove’s group of companies.

The bonds, issued through Top Glove Labuan Limited, offer a number of benefits to Top Glove, including lower funding costs due to the equity optionality embedded in the instrument. It also mitigates the company’s exposure to fluctuating interest rates due to the fixed nature of the coupon under the bonds, resulting in a more efficient cash flow management.

The new shares to be issued upon the exchange of the bonds are expected to strengthen Top Glove’s equity base, lower the gearing ratios, increase shareholding spread and potentially enhance the liquidity of the company’s shares.

In addition, as Top Glove’s initial offering, the bonds likewise diversify the company’s funding sources and naturally hedge against the group’s revenue from its export business, which is mainly denominated in the US dollar.

Top Glove executive chairman Lim Wee Chai says raising funds through the issuance of exchangeable bonds will enable the company to refinance its existing loans at a lower interest rate, which in turn helps to enhance its working capital and strengthen its financial position.

BNP Paribas Securities (Asia), CIMB Bank and Citi acted as joint global coordinators, bookrunners and lead managers for the transaction.

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Date

25 Feb 2019

Channel

Treasury

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