After Temasek split, Singapore chipmaker faces funding test

[SINGAPORE] Stats ChipPac Ltd., Southeast Asia's biggest semiconductor assembler, is seeking to refinance US$400 million of debt in the first test of its credit strength without the implicit AAA backing of the government of Singapore.

The chip packaging and testing company plans to sell dollar-denominated bonds due in five years to help repay part of an US$890 million bridge loan, chief financial officer Woo Kwek Kiong said in an e-mail interview. The company is currently seeking a US$500 million syndicated loan to pare the bridge loan from DBS Group Holdings Ltd.

The planned note offering comes after Temasek Holdings Pte, the Singapore sovereign wealth fund, cashed out from Stats ChipPac as Chinese firm Jiangsu Changjiang Electronics Technology Co completed its takeover bid in October. Temasek's departure triggered two rating downgrades by Standard & Poor's just as the financing costs of lower-rated borrowers in Asia are rising amid renewed global market jitters.

"The interest rate of any bond issued by the company will be in line with outstanding bonds issued by comparable companies in a similar industry and ratings category," Mr Woo said. "The transaction will be leverage neutral as proceeds will be used to re-finance the bridge loan."

Stats ChipPac expects "significant" prospects in China, one of its key geographic focuses that has historically demonstrated the fastest growth rate in the semiconductor assembly and testing business, Mr Woo said. Stats ChipPac is banking on strong support from strategic shareholders like JCET and Semiconductor Manufacturing International Corp, who are declared "national champions" of the industry in China, Mr Woo said. That has opened the door to the previously inaccessible market segment in China, he said.

The company's steps come amid the slowest economic growth since 1990 in China and as the industry experiences a sluggish orderbook in North America.

At BB-, or three steps below investment grade, Stats ChipPac may have to pay 4.5 per cent to 5 per cent to sell the notes, according to Charles Macgregor, head of Asian high yield research in Singapore at Lucror Analytics. The company's existing 4.5 per cent notes due 2018 traded at 98.87 US cents on the dollar to yield 5.02 per cent, according to Bloomberg-compiled prices.

"The proposed bonds would be structurally senior," Mr Macgregor said. "That said, markets may be more risk averse in light of the Paris terror attacks and the yield may be outside that range." Stats ChipPac has named Barclays Plc, DBS and ING Groep as joint bookrunners and lead managers to arrange a series of investor meetings in Asia, Europe and the US from Nov 11, which may be followed by a bond offering subject to market conditions, a person familiar with the matter said earlier this month.

The chipmaker last sold US$611 million of the 4.5 per cent notes in March 2013. Then, it was ranked two steps higher at BB+ by S&P and Temasek was its major shareholder. Its debut sale was a 12.75 per cent 10-year bonds in 1999 when it was largely owned by private equity funds, according to Bloomberg data.

BLOOMBERG