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China Development and SinoPac planning merger

China Development Financial Holding Corp (中華開發金控) is mulling a merger with rival SinoPac Holdings Co (建華金控), which would be the first marriage between newly established mega banks.

"If negotiations go smoothly, the two companies may reach a merger agreement by the end of the year," said Grace Fang (方鳳山), spokeswoman for China Development -- the nation's fourth-largest financial service company by market value.

Fang added that the deal is pending further discussions between both companies' top management including China Development chairman Liu Tai-ying (劉泰英), who is slated to be released from detention on June 9.

Before his detention, Liu had led the merger plan, which Fang said would be a win-win situation and a complementary arrangement for both financial-service companies.

If merged into China Development, SinoPac would help streng--then the parent company's commercial and consumer banking businesses and increase the company's scale of economy, she said.

Since plans to merge with SinoPac are not on the agenda for the upcoming China Development shareholders' meeting scheduled for June 27, any merger would not take place until next year, Fang added.

The company's acting chairwoman, Diana Chen (陳敏薰), told local media on Thursday that the merger plan may be concluded by year's end.

Fang denied media speculation that a share-swap ratio of one SinoPac share for between 1.2 and 1.3 shares of China Development has been agreed upon.

She added that the swap ratio and possible top management reshuffle are still under discussion.

But a stock analyst yesterday said that China Development may have to pay higher premium in order to acquire SinoPac.

"One share of SinoPac for 1.3 shares of China Development sounds reasonable while 1.2 is too low," said William Fong (方偉昌), an analyst at Primasia Securities Co.

The analyst said that SinoPac's earnings per share (EPS) may reach over NT$1 this year while China Development's EPS may hover around NT$0.9 due to low returns from this year's investment projects.

Fong was nevertheless positive yesterday about the merger plan, since China Development would be able to better compete with 12 other financial holding companies.

The merger would allow it to secure its niche market in investment banking and securities businesses while beefing up its competitiveness on consumer banking with SinoPac's affiliation.

With NT$107.5 billion in capital, China Development has "established a strong wholesale banking position, and now we want to strengthen our retail banking," according to its vice president, Yang Tze-kaing (楊子江).

China Development is seeking a bank with about 50 branches and consumer and corporate lending businesses, he said.

With 44 branches and capital of NT$37.5 billion, SinoPac has the second-highest percentage of overseas shareholders among domestic lenders.

China Development's subsidiaries include China Development Industrial Bank (中華開發銀行), First Taiwan Securities Inc (菁英證券) and Grand Cathay Securities (大華證券). SinoPac's subsidiaries include Bank Sinopac (建華銀行) and SinoPac Securities Corp (建華證券) and is currently bidding for Grand Commercial Bank (萬通銀行), a lender controlled by the nation's largest food company, Uni-President Group (統一集團).

Shares of China Development yesterday fell NT$0.50, or 3.8 percent, to NT$12.60 while shares of SinoPac fell NT$0.3, or 2.3 percent, to NT$12.70.
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