A new convertible bond offering by a major supplier to Apple Inc will add to the dollar funds raised by Taiwan’s tech firms this year, thanks to the hybrid securities’ popularity and demand for artificial intelligence (AI) investments.

Quanta Computer Inc, a MacBook contract manufacturer, is seeking to raise up to US$1 billion by selling convertible notes, it announced in a filing dated Friday. The company said it will use the proceeds to buy raw materials.

“We see the AI theme to be a fundamental change to the business mix and capital expenditure needs for the Taiwanese companies, which will set the trend for Taiwan’s equity capital markets over the next few years,” said Brian Chau, co-head of Asia equity-linked deals at UBS Group AG.

Global enthusiasm about AI is driving expansion plans by chipmakers and tech firms, many of which are based in Asia, leading to increased borrowing needs. Some are turning to convertible bonds, given the high interest rates environment, as the hybrid notes’ equity component typically means coupons are lower than on regular debt. 

Taiwanese companies have sold US$1.3 billion worth of dollar-denominated convertible bonds so far in 2024, already surpassing the annual total raised in each of the last two years, Bloomberg-compiled data show. They also have issued a combined US$2.9 billion of additional shares in the US currency this year, exceeding any full-year figure since 2007.

The buyers of the recent share sales include sovereign wealth funds and long-only funds that seek exposure to AI but historically haven’t invested in such firms, said Rob Chan, head of equity-linked origination for Asia Pacific at Citigroup Inc.

Taiwan’s tech firms have been big beneficiaries of the AI frenzy. Chip giant Taiwan Semiconductor Manufacturing Co’s (TSMC) US-listed shares have jumped 66% this year, while Quanta’s Taipei-listed stock is up about 20%.

The surge in dollar funding by local firms also reflects their need to hedge against a weaker Taiwan dollar. The island’s currency has dropped about 5% against the greenback this year, the second worst-performer in Asia, behind the South Korean won. 

A similar trend has occurred in China, where tech behemoths Alibaba Group Holding Ltd and JD.com Inc sold dollar-denominated convertible debt in May, partly to to fund share buybacks in the US. 

While the recent pullback in AI-related stocks around the world may slow fundraising in the near term, more additional share sales by Taiwanese companies are likely on tap for the next 12- to 18 months, said UBS’ Chau.

Taiwanese tech companies that also have raised funds this year include computer storage devices maker Wiwynn Corp, as well as semiconductor-related firms GlobalWafers Co and Alchip Technologies Ltd.

“There is a real use case for cash, given the growth of these businesses - it’s not about companies looking to take advantage of high stock prices,” said Citigroup’s Chan. “I don’t think that a bit of market volatility is going to shut off the way that companies plan for accessing the markets to fund growth.”

  - Bloomberg