Chartered Semiconductor Manufacturing Limited has announced its plan to prepay US$300 million principal amount of its existing bank loans through a public offering of senior notes due in 2013.
Concurrently, but separate from the Senior Notes offering, Chartered has replaced the call option transaction that it had entered into in August 2004, which was due to expire on April 2, 2006 (the "2004 Option"), with a new call option transaction (the "2006 Option") for the same number of Chartered ordinary shares.
"Chartered strives to be proactive in managing its finances, and both of the transactions we announced today are in line with that strategy," said George Thomas, senior vice president & CFO of Chartered.
"The Senior Notes satisfy Chartered's following corporate finance objectives: first, we will be able to refinance the bank loans at better terms, thereby lowering the average cost of our debt; and second, the Senior Notes allow us to term out our debt maturity profile, consistent with the five and 10-year notes that Chartered issued in August 2005, due in 2010 and 2015 respectively.
"Separately, the new 2006 Option, if exercised in full at the S$2.15 strike price and physically settled, will enable Chartered to receive approximately US$285 million(1) that could be used for repayment of debt and general corporate purposes. This will further improve our debt to equity ratio and strengthen our capital structure. This option transaction will not increase our debt level or interest expense, nor lead to additional dilution to our shareholders beyond what was originally contemplated under the 2004 Option," concluded Thomas.
Refinancing Plan
The Senior Notes offering is expected to raise approximately US$300 million and is expected to consist of one tranche with a seven-year maturity. Under the refinancing plan, the net proceeds from the issuance of the Senior Notes will be used to prepay US$300 million in principal amount of Chartered's outstanding bank loans.
The Senior Notes will constitute senior, unsecured obligations of Chartered and pay interest semi-annually. Chartered intends to offer and sell the Senior Notes pursuant to its effective shelf registration statement filed with the U.S. Securities and Exchange Commission (SEC) in March 2001. The offering will be subject to customary closing conditions. Chartered has obtained in-principle approval from the Singapore Exchange Securities Trading Limited (the "Singapore Exchange") for the listing and quotation of the Senior Notes.(2) Goldman Sachs (Singapore) Pte. will be the sole book runner and lead manager of the Senior Notes offering.
Option Transaction
Under the 2006 Option, the counterparty is entitled to purchase up to 214.8 million of new Chartered ordinary shares at a price of S$2.15 per share, representing a premium of approximately 48.3% to the closing price per share of S$1.45 as quoted on the Singapore Exchange on March 28, 2006. In the first year, on the first occasion that the closing price of Chartered's ordinary shares is equal to or higher than S$1.75 on each of any 20 business days in any consecutive 30 business-day period, Chartered will have the right to terminate the 2006 Option early in whole or in part. If Chartered elects to do so, the counterparty will have the right but not the obligation during the following 30 business days to buy new Chartered ordinary shares up to the amount terminated early at S$1.60 per share. If Chartered elects not to terminate any part of the 2006 Option or only terminates it in part, the 2006 Option (or the remaining portion) will continue under its terms. In addition, the 2006 Option has a "soft call" feature from the second year that will also allow Chartered to terminate the transaction early, in whole or in part, if the closing price of Chartered's ordinary shares is equal to or higher than S$2.6875 (equivalent to 125% of the S$2.15 strike price) on each of any 20 business days in any consecutive 30 business-day period. Should Chartered exercise this right, the counterparty will be required to buy the number of new Chartered ordinary shares relating to the terminated portion of the 2006 Option at S$2.15 per share.
Under the terms of the 2006 Option, Chartered has the right in all cases either to issue shares to the counterparty upon exercise or to cash settle the transaction. If not terminated early, the 2006 Option expires on March 29, 2011. The counterparty for the 2006 Option is the trading division of Goldman Sachs International, which was also the counterparty for the 2004 Option.
Restrictions on ADS Program
Chartered's sale of the 2006 Option to the counterparty was made in reliance on Regulation S under the U.S. Securities Act of 1933, as amended. In order to ensure that the requirements for Regulation S under the Securities Act are satisfied for the sale of the 2006 Option, all holders of our ordinary shares who wish to make deposits into our ADS facility during the period commencing on March 29, 2006 and ending on May 9, 2006 (unless such period is extended as described below) will be required to submit to the ADS depositary a certification in connection with such deposit. The ADS depositary will provide the form of the certification and will require each depositor to certify that:
-The beneficial owner of the ordinary shares to be deposited is not an affiliate of us or acting on behalf of us, our affiliates or the counterparty; and -the ordinary shares being deposited were acquired by such beneficial owner prior to March 29, 2006.
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