Hon Hai Precision Industry Co (鴻海精密) this week plans to issue US$700 million in overseas convertible bonds at a negative interest rate.
It would be the first time Hon Hai sells bonds at a negative rate in a market awash in liquidity, cutting financial burdens shouldered by many enterprises in their borrowing costs.
Hon Hai, an essential iPhone assembler for Apple Inc, said the proceeds from the bond sales will be used to pay for the company’s purchases of raw materials from overseas markets to lower interest payments.
Photo: CNA
According to Hon Hai, the convertible bonds, which are scheduled to be listed on the Singapore Exchange on Thursday, have been priced with a zero coupon rate of minus-0.41 percent, with maturity at five years on Aug. 5, 2026.
The convertible price has been set at NT$163.17, which represents a 48 percent premium over Hon Hai shares’ closing price of NT$110.00 on the Taiwan Stock Exchange on Friday.
Hon Hai said that if investors convert all of the bonds they hold after maturity, the company’s paid-in capital will be diluted by only 0.86 percent, which is unlikely to impact existing shareholders significantly.
Despite the negative rate, Hon Hai’s convertible bond sale attracted many foreign investors, market sources said, adding that the bonds have been more than three times oversubscribed with their pledges topping US$2.2 billion in total.
The sources said the strong interest from foreign investors indicates they have faith in Hon Hai’s prospects by transforming itself from a contract manufacturer into a company capable of integrating its hardware and software strengths.
Hon Hai has scheduled an investors’ conference for Aug. 12, as the market is awaiting the company’s latest developments in electric vehicles and semiconductors.
The company could begin mass production of the next-generation iPhone, likely called the iPhone 13, in September. Apple accounts for more than 40 percent of Hon Hai’s total sales, as its production site in Zhengzhou, China, comprises more than 50 percent of iPhone production.
Separately, electronic component maker Lite-On Technology Corp’s (光寶科技) board of directors on Thursday approved a cash dividend of NT$2 per share for earnings made in the first half of this year.
The company reported net profit of NT$8.3 billion in the first half of the year, with earnings per share (EPS) of NT$3.57, up 65 percent year-on-year.
The company said EPS reached NT$1.74 in the second quarter, down from NT$1.83 in the first quarter.
The company’s board also agreed to start a stock buyback program on Friday, aiming to repurchase 40 million shares on the open market. It proposed spending up to NT$3.58 billion in the buyback program, which will continue through Sept. 29, it said.
Additional reporting by Angelica Oung
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