As the largest global semiconductor manufacturer and one of the most familiar names among investors, Taiwan Semiconductor Manufacturing Company (“TSMC”) is tapping the USD bond market again, this time round via a four-tranche deal. The multi-tranche deal comprises of a 5Y, 7Y, 10Y and 30Y senior unsecured fixed rate notes.
TSMC was established in 1987 as a joint venture among the R.O.C. government and other private investors, and it was first listed on the Taiwan Stock Exchange in 1994. Headquartered in Taiwan, the Group offers a comprehensive range of services such as wafer fabrication processes, design, mask making, advanced packaging and testing services. In 2021, the Group produced 26% of the world’s semiconductor (excluding memory output value) that cover a wide range of applications in the computer, communications, consumer and industrial segments. Its customers include many of the world’s leading semiconductor companies like Advanced Micro Devices, Inc, Broadcom Limited, Intel Corporation, and NVIDIA Corporation.
Table 1: Summary of TSMC's four-tranche deal
|
Bonds |
Tenor (Years) |
Par Call Date |
Initial Price Guidance (“IPG”) |
Estimated IPG |
|
TAISEM 22Apr2027 Corp (USD) |
5 |
22Mar2027 |
CT5+120 bps area |
3.989% |
|
TAISEM 22Apr2029 Corp (USD) |
7 |
22Feb2029 |
CT7+137.5 bps area |
4.229% |
|
TAISEM 22Apr2032 Corp (USD) |
10 |
22Jan2032 |
CT10+155 bps area |
4.403% |
|
TAISEM 22Apr2052 Corp (USD) |
30 |
22Oct2051 |
OLB30+175 bps area |
4.698% |
Proceeds from this multi-tranche bond offering will be used for general corporate purposes. All of the bonds are senior unsecured and have an expected issue rating of "Aa3"/"AA-" by Moody’s/S&P. The issuer may choose to redeem the bonds prior to the applicable par call date at a price equal to the greater of: 1) 100% of the aggregate principal amount and 2) the sum of present values of remaining scheduled payments, discounted to the redemption date on a semi-annual basis. On or after the applicable par call date, the redemption price will be equal to 100% of the aggregate principal amount plus any accrued and unpaid interest.
TSMC announced its financial results for the first quarter ended 31 March 2022 (“1Q22”) last week. Net revenue surpassed its 1Q22 guidance, growing by 35.5% year-on-year (“YoY”) and 12.1% from the previous quarter. Its operating margin improved from 41.7% in 4Q21 to 45.6% in 1Q22 on the back of cost improvements and strong HPC and automotive-related demand. Revenue contribution from all platforms improved in the first quarter, with Smartphone and HPC representing 40% and 41% of 1Q22 net revenues respectively. For 2Q22, the Group is expecting net revenues to increase to a range of USD 17.6b – USD 18.2b, while operating margins are projected to come in between 45% and 47%.
Moving on to its credit profile, TSMC maintains a strong balance sheet and remains well-positioned to meet its financial obligations. As at 31 March 2022, the Group has USD 40.2b of cash and cash equivalents, which is more than sufficient to cover its total borrowings comprising of USD 5.1b of short-term loans, USD 0.6b of short-term bonds payable and bank loans, as well as USD 22.0b of long-term bonds payable. Its current ratio as at 31 March 2022 stands at 2.1x, while total debt-to-asset ratio is approximately 19.8%.
At initial price guidance, the new issuances look more attractive than TSMC’s existing bonds as they are priced 30 – 50 basis points (“bps”) above its current yield curve. However, investors should note that the final price guidance for the new bonds will likely be lower than the initial price guidance.
Among the bonds issued in the four-tranche deal, we think that the short-dated paper such as the 5-Year bond looks more attractive than the longer-dated bonds. Between the 5 and 30-year bond, there is only a difference of ~70 bps in yields despite having a significant difference in time to maturity. As such, investors who are looking for stable income options may consider the new TSMC bonds with a shorter time to maturity, particularly in a rising rate environment.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
Our podcast series, Yield Hunters, is available on Spotify, iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!