Photo of Giuseppe Amodio, STMicroelectronics, Javier Pollan, Citi, Giuseppe Notarnicola and Andrea Talpo, STMicroelectronics.
This is the largest convertible bond offering in EMEA since 2015 and through a mix of strategy with the Soft Call exercise, market timing of the new issuance and most market friendly features of the CB, ST was finally able to refinance US$1.2bn at 0%.
Head of Financial Risk Management
STMicroelectronics (ST) is a global semiconductor leader, designing and manufacturing intelligent and energy-efficient products which address the needs of a number of large markets: industrial systems, automotive applications, personal electronics including smartphones, and all types of IoT peripherals. ST enables innovation at both large global OEMs and more than 100,000 customers worldwide. In 2017, the company’s net revenues were US$8.35bn. ST is listed in Paris, Milan and New York.
in partnership with
Largest convertible bond offering since 2015 in EMEA
Since 1998, STMicroelectronics (ST) has issued equity-linked instruments to finance its debt, taking advantage of the credit standing, the tech sector high volatility and the equity trend.
During 2017, the outstanding US$1bn convertible bonds (CB) issued in 2014 were “in the money”, given the recent impressive performance of the stock price. Therefore, in May 2017 ST began to receive conversions from bondholders and sounded the market to refinance the debt with a similar CB.
The new CB, was issued with the feature of Net Share Settlement which allowed ST to settle fully in shares, in cash or a mix of the two. On top of that, ST was in a position to exercise the soft call at 130% of the conversion price on the outstanding CB, forcing conversions to limit excessive dilution from further share price increase. At the end of June, ST issued a new US$1.5bn CB and contextually exercised the soft call on US$600m of the outstanding CB and announced the launch of a share buyback plan.
On 22nd June 2017, ST issued a US$1.5bn CB in two tranches of US$750m each for five and seven years maturity. The five-year tranche was issued at -0.25% YTM, while the seven-year tranche was issued at +0.25% YTM (average 0% on the full issuance). Both had a conversion premium of 37.5% and soft call at 130% non-callable three years and four years respectively for the first and second tranche.
Best practice and innovation
Despite the fact that ST could have managed the bond conversions from cash in hand, it decided to refinance the debt while forcing conversion of the previous issuance and launching a buyback for the shares underlying the new CB in order to almost totally offset the dilution.
The market window was favourable, with very positive share price performance (+150% from 1st January, 2016). Volatility levels were at a historic high and new equity-linked issuances in 2017 were well below the average of preceding years, creating a positive appetite for this asset class.