AU fundraising spurs share rally, seen signaling demand for panels

TAIPEI (Reuters) - AU Optronics' plans to raise as much as $350 million in an overseas share issue sparked a surge in its shares, signaling that strong demand for high-definition displays in tablets and TVs is breathing new life into the loss-making panel maker's fortunes.

Shares in the Taiwanese company, which supplies screens for Apple Inc's iPad mini, surged their 7 percent daily limit for a second day in a row on Tuesday after it announced plans to sell 640 million to 800 million shares as American depositary receipts (ADRs).

"It's urgent and necessary for AU to raise the funds to upgrade its technology," said Oscar Chung, a fund manager at Capital Securities Investment Trust in Taipei, pointing to rising demand for high-definition panels.

"This year will be the first in a few years that sees the industry's gap between demand and supply narrowing," said Chung, who manages $372 million and has been accumulating AU shares this month.

The company did not put a figure on how much it aimed to raise or how the money would be used, saying only that proceeds from the sale will be used for raw material purchases. At AU's latest share price, the issue could raise up to $350 million.

CONFIDENCE IMPROVED

The company earlier this month posted a net loss for a second year in a row in 2012 as panel oversupply weighed on the industry.

The loss forced it to forgo a dividend payment, which it announced along with the rights issue late on Monday. It also said it would cut its capital expenditure budget by T$8.6 billion ($290 million).

"The cut in capex is in line with their peers in Taiwan. In the past 10 years capex was for new capacity, but the industry is in an oversupply situation now," said one technology analyst at a European bank.

"They don't need to build capacity, the money should be spent on new technology," the analyst said.

"The operating cash flow is improving and they should be able to pay down debt. They are in a better financial position compared with previous years so they should be able to negotiate new loans and be in a better position to raise money in the market as their customers are top-tier names, including Apple."

The company has T$77 billion cash in hand, which is more than enough to cover short-term debt of T$54 billion out of total borrowings of T$220 billion.

AU's stock has bounced more than 15 percent from a three-month low hit late last week, as its prospects brighten. It nevertheless is virtually flat with its level at the start of last year, compared with a nearly 15 percent rise in Taiwan's benchmark index.

Its convertible zero coupon convertible bonds due in 2015, while trading below par at $94/94.75, have recovered from their June low of $76 as confidence improves in its debt-servicing ability. The convertible bonds now trade like straight debt as they are far out of the money.

($1 = 29.6165 Taiwan dollars)

(Additional reporting by Umesh Desai in Hong Kong; Writing by Edmund Klamann; Editing by Richard Pullin)

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