Tech giant Compal (3706) has approved the launch of a large-scale fundraising plan. The company plans to raise NT$12 billion by issuing two tranches of unsecured convertible bonds (CBs), and to simultaneously conduct a cash capital increase of 120 million shares. The purpose of this massive capital raise—amounting to over NT$10 billion—is mainly to strengthen working capital and meet the huge demand for component procurement for its AI server business, as well as overseas expansion needs. The company also decided to dispose of its overseas equity investments to enhance asset liquidity. The CBs will be issued at a premium with a coupon rate of 0%, reflecting the company’s expectations for subsequent market value; however, the large share issuance and the potential number of shares arising from conversion will also add pressure to expand equity. Whether the subsequent use of funds can translate into tangible revenue and profit will be an important benchmark for the market to assess.
ShenDa launches a major fundraising effort, with 12 billion TWD convertible bonds and a 120,000-share rights issue activated simultaneously.
For this round, ShenDa plans to issue two tranches of 5-year unsecured convertible corporate bonds with a zero coupon rate, with a total issuance limit of up to NT$12 billion. Of this, CB1 has a quota of NT$10 billion, to be raised via bookbuilding placement to specific legal entities; the tentative issue price is 100.5% to 101% of par value. CB2 has a quota of NT$2 billion, to be issued via public underwriting through competitive bidding; the floor price is 105% of par value. At the same time, it will proceed with a cash capital increase to issue 120 million new shares (120,000 shares in 12 lots), retaining 10% for employee subscription and 10% for public underwriting, with the remaining 80% reserved for existing shareholders. The issue price will be determined after the relevant registration becomes effective. The board of directors also approved in parallel the disposal of shares in the invested company, TD Synnex Corp., to activate the group’s cash flows.
Working capital needs: stocking for high-end GPUs and overseas capacity expansion
Market consensus is that this fundraising is related to the company’s expansion of its AI server business, the establishment of U.S. production capacity, and demand for high-end GPU procurement. However, the company’s announcement only states that the funds will be used to strengthen working capital. As cloud service providers accelerate the build-out of AI computing infrastructure, the unit price of high-end graphics processing units (GPUs) mounted on servers is high. Before contract manufacturing and assembly vendors ship products and collect accounts receivable, they need to carry a higher proportion of working capital for material procurement and inventory management. Meanwhile, to meet supply-chain transfer requirements, ShenDa is also pushing the establishment of overseas assembly lines such as in the United States. Coupled with ShenDa Digital’s expansion into the edge computing space, this prompts the company to build up large-scale capital reserves in advance.
Assessment of financial structure: risk of equity dilution and effectiveness of conversion
Large-scale equity fundraising can bring multiple impacts on the company’s financial structure. First, the CBs are issued at a premium with zero coupon interest, which helps reduce interest expense outlays. The main source of return for funding providers depends on the potential capital gains from subsequent conversion into common shares. Second, the cash increase issuing 120,000 new shares, together with the potential equity conversion from the convertible corporate bonds in the future, will expand the number of shares outstanding in circulation, creating an equity dilution effect. If the growth in profitability does not keep pace with the rate of equity expansion, earnings per share (EPS) may face downward pressure in the near term. The key focus going forward will be the actual issuance pricing, the setting of the conversion price, and the realized operating transformation rate once the funds are in place.
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