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Global investors to get smaller Chunghwa slice

The Legislative Yuan's technology committee decided yesterday that the overseas portion of state-run Chunghwa Telecom's (中華電信) privatization will be reduced from 14 percent to 10 percent.

The Ministry of Transportation and Communications (交通部) had already cut the size of overseas portion from the 19 percent proposed by Chunghwa Telecom, but that didn't satisfy the committee.

Now, 18 percent of the phone company will available to domestic investors during the offering's first phase, up from 14 percent previously.

According to proposals drafted by the transportation ministry, the utility's privatization was to be be carried out in two phases.

In the first stage, 33 percent of the company was to be sold next year, with 14 percent sold to foreign investors, 14 percent to domestic investors and the remaining 5 percent reserved for employees.

Because the second phase involved no overseas sales, the legislative committee gave the green light to the transportation ministry's proposal that another 33 percent of Chunghwa be sold to domestic investors and employees, with 20 percent to the former and 13 percent to the latter.

The entire privatization is expected to be completed by 2001, after 66 percent of the company's shares are sold.

With a sale price tentatively set at NT$60 per share, the sale of the 66 percent stake in the company would generate nearly NT$400 billion for the nation's coffers, Chunghwa Telecom said.

The committee said the proposal is expected to become law soon after passage by the legislative body, followed by promulgation by the president.

But despite the reduction in the quota of shares sold to foreign investors in the first stage of the sale, the committee decided that foreign investors would be allowed to hold 30 percent of Chunghwa Telecom after the completion of the second phase.

The decision was made after taking into consideration the fact that some domestic investors who had purchased Chunghwa Telecom shares in the first stage might start selling their shares in the second phase on profit taking, thus triggering the price to drop.

New domestic buyers may stand on the sidelines as a result, so the company may need foreign investors to boost shares.

H.Y. Yiu (游淮銀), a legislator who pushed for this proposal to be passed, explained that Chunghwa Telecom may be sold at NT$100 per share in the first stage, and up to NT$150 per share in the second stage due to the popularity of the telecom shares.

With the higher price, investors who purchased Chunghwa Telecom shares in the first stage could start selling their Chunghwa Telecom shares and in the process scare off new domestic buyers.

However, if domestic investors were to know that foreign investors would be allowed to hold more Chunghwa Telecom shares after the second phase of the sale, they would retain more confidence in the share price, and will be more willing to keep their shares.

"Foreign investors play an important part in Taiwan's stock market. We need foreign investors to calm down anxious domestic investors," Yiu said.

As for the overseas underwriting process, the committee overturned its decision made last month that Chunghwa Telecom should find at least two lead-mangers, with each underwriting a portion amounting to at least 10 percent of the overseas portion. However, it retained the decision that the telecom company should find one global coordinator to underwrite no more than 40 percent of the 10 percent overseas portion.

Chunghwa Telecom plans to make the bidding announcement for an underwriter for its domestic sales before the end of this year, and hopes to start the sale of its shares before the end of next year.
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