INVESTMENT CASE ON A CONVERTIBLE TRADEIDEA SENT ON 22 MARCH 2016 WHEN CB WAS TRADING AT 2.15E

ON 11 MAY, SOITEC ANNOUNCED OFFER ON ALL CONVERTIBLE BONDS AT 2.45E

THIS REPRESENTS A 14% UPSIDE IN LESS THAN 2 MONTHS

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INITIAL INVESTMENT CASE SENT ON 22 MARCH 2016

Soitec is arranging a massive capital increase subject to shareholder approval on 11 April 2016 to i) pay back a bridge loan, ii) have some cash for future capex and iii) repay part of the convertible 2018 convertible bond.

 

This is more or less a repetition of what happened in 2013, when SOITEC issued a capital increase and the 2018 convertible to pay back the 2014 convertible bond in advance.

At the time, the convertible bond was bought back at nominal and convertible bondholders who tendered “missed out” the last coupon (ie 6 ¼ %).

 

What I think will happen:

-          Soitec will raise the maximum it can via its 2 capital increases (details below) ie 180mE-          Soitec will use 80mE to buy back as many convertibles as possible via a kind of Dutch

auction-          I think the price to be paid will be nominal (ie 2.58E / convertible bond, ie 17% higher than

2.20E, where the bond is trading right now)-          Timing: the cash payment for the bonds will be done in July 2016 in my view (see the

“timing” paragraph below)

 

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Characteristic of the convertible bond SOITEC 2018

-          Nominal value per bond: 2.58E -          Coupon of convertible bond: 6 ¾% paid semi annually (paid in mid March and mid 

September of each year until September 2018) 

-          Maturity: 18 September 2018-          Total size of convertible bond: 103.2mE-          Current price of convertible bond: 2.20E (no accrued interest included in the price of the 

bond)

 

 

The 2 capital increases that Soitec will carry out:

-          A reserved capital increase of 76.5mE done at 0.55E / share (a very small discount to current Soitec share prices)

o   CEA investment (French institution controlled by French State), BPI France (French State Fund) and NSIG (Chinese industrial group linked to Semiconductor industry) are subscribing to the reserved capital increase

-          A capital increase with subscription rights o   Between 53.5mE and 103.5mE to be raisedo   Already guaranteed up to 103.5mE by a syndicate of banks (Soitec doesn’t

communicate the name of the banks)o   CEA, BPI and NSIG will after the 2 capital increases own 40% of the capital of Soitec

-          The proceeds of the capital increases will therefore range between 130mE and 180mEo   I think Soitec will raise the 180mE in any case as this offers a unique opportunity for

them to raise a significant level of cash

 

The proceeds of the capital increase will be used as follows:

-          50mE to pay back a bridge loan maturing in May 2016-          40mE to be kept as cash for future capex (to be used in the next 18/24 months)-          Between 40mE and 80mE hence to be used to buy back the 2018 convertible bonds (ie

between 40% and 80% of the nominal of the convertible)

Suspensive clause still to be validated for the plan to go ahead:

-          The investment from NSIG needs to be approved by a French foreign investment authorityo   This process will have been finalized before the 11 April, date of the AGM of Soitec 

that will need to vote for the 2 capital increaseso   Also, I don’t think such approval is a problem, considering that the 2 investors 

alongside NSIG are the French CEA and BPI France (both controlled by French State …) 

-          For the plan to go ahead, you need approval of the plan by the AGM of 11 April. o   Minority shareholders of Soitec might be fed up being dilutedo   However I think the AGM will vote in favour of the plan especially as 12/13% of the 

capital is owned already by BPI France and Caisse des dépots

AGM: quorum and votes necessary

-          Quorum needed for AGM to be valid: 25% of all shares-          Votes necessary to pass capital increase: 2/3 of quorum

Timing:

-          April 11: AGM to validate the 2 capital increases-          End April: reserved capital increase finalized-          May 2016-end: end of consultation with the convertible holders in preparation of the Dutch 

auction on the convertibles-          June 2016: capital increase with subscription rights-          July 2016: Dutch auction on the convertible bonds

 

 

What is Soitec?

-          Soitec is a company specialized in FDSOI Technology, which enables more speed and less consumption of power for chips.

-          In the past, it had 2 divisions, one dedicated to solar power, one dedicated to consumer appliances (phones, tablets … )

-          Last year, the company made a big profit warning and decided to sell its solar power business due to lack of turnover

-          It is now refocused on FDSOI technology used for consumer appliances. ST Micro is very bullish on its technology and is starting production of chips using FDSOI…  

 

 

Everything I mention above is explained in the presentation made by the company on 10 February below

http://information-soitec2016.datadraft.net/img/medias/20160210-Soitec_Proposed_Capital_Increases_vE.pdf

 

 

  

Thanks

Mathias Lascar

 

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