Government to sell stake in Taiwan Cooperative Bank

The government plans to sell half of its 60 percent stake in Taiwan Cooperative Bank (合作金庫), valued at NT$35.6 billion (US$1 billion), by the end of next year as it tries to refinance a record national debt and pare the budget deficit.

The government will offer shares in the nation's biggest lender by branches to bank employees and domestic investors, starting with an initial share sale by next June, William Tseng (曾銘宗), the bank's president, said.

"We will have a listing first," Tseng said. "The listing process may not necessarily complete the privatization."

The government wants to turn over more of its state-owned lenders to private industry as it tries to refinance national debt of NT$3 trillion and pare a budget deficit expected to reach NT$238.1 billion next year.

Taiwan also plans to sell stakes in Bank of Taiwan (台灣銀行), Land Bank of Taiwan (土地銀行) and Central Trust of China (中信局) by 2006, and cut its holdings in six publicly traded lenders to less than 20 percent by 2005, the finance ministry said this month.

Taiwan Cooperative's 2.2 billion shares are valued at NT$27 each, making for a net worth of NT$59.4 billion, Tseng said.

In the initial sale of shares on the Taiwan Stock Exchange, the government may offer its shares at about NT$20 each, a discount to net worth, said the bank's president.

That's using the share price of government-controlled First Commercial Bank (第一銀行), Hua Nan Financial Holding Co (華南金控) and Chang Hwa Commercial Bank (彰化銀行) as reference points and taking into account the 24 percent drop in TAIEX so far this year.

"It's hard to forecast the share price now, but our price should be better than the three banks," said Tseng. No share sale manager has been appointed yet, he said.

Investors said Taiwan Cooperative may face competition from other asset sales. The government wants to pare stakes in companies including First Commercial, Chinese Petroleum Corp (中油) and China Steel Corp (中鋼)

"It won't be easy," said Karl Tseng, who helps manage aboutNT$19 billion in fixed-income and equities at Prudential Securities Investment Trust Co (保誠投信). "The price must be attractive. The timing for next year is uncertain because the economic slowdown may drag."

Farmers' and fishermen's associations, private banks and credit cooperatives own the other 40 percent of Taiwan Cooperative, Tseng said.

The lender, which has about 200 branches and about 7,400 employees, plans to reduce bad loans to 7 percent of total lending by the end of the year. About 7.4 percent of its NT$1.2 trillion of loans was non-performing as of August, said the bank chief.

"Just looking at the numbers is meaningless," said Prudential's Tseng. "Investors need time to know the bank's asset quality and operations. For the same share price, there are other better companies to invest in."