China Development Financial Holding Corp's (中華開發金控) intention to use the stake held by its subsidiary China Development Industrial Bank (開發工銀) to influence its upcoming board reshuffle is "illegal," according to a statement made on behalf of KGI Securities Co (中信證券) yesterday.
"Despite its 7 percent stake, the bank doesn't enjoy voting rights in the parent company's upcoming board election," said Daniel Wu (吳春台), chairman of Grand Pacific Petrochemical Corp (國喬石化), who spoke on behalf of KGI president Angelo Koo (辜仲瑩).
KGI is the biggest shareholder in China Development Financial Holding Corp.
As a major shareholder, Wu said that KGI would definitely take legal action against China Development Financial Holding Corp chairwoman Diana Chen (陳敏薰) if she proceeds with her plans in violation of the corporate law and corporate governance principles.
Chen may lose her position after the Ministry of Finance decided to re-allocate board seats according to shareholdings during a meeting on Sunday.
Wu also warned the company's incumbent board members that they might face legal repercussions if they endorse Chen's proposed emergency board meeting tomorrow, at which the reshuffle is to be discussed.
Minister of Finance Lin Chuan (林全) last month announced plans to revise the Financial Holding Company Act (金融控股公司法) to prohibit subsidiaries with stock in their parent companies from voting to elect members of their boards.
The Bank of Taiwan (台灣銀行) yesterday said that it would hold on to its 1.56 percent stake in China Development, with no plan to release the government-owned shares in the financial-service company for the time being.
"At times like this, it's unlikely that the bank will sell those shares," Bank of Taiwan chairman Chen Mu-tsai (陳木在) said.
Chen Mu-tsai was pressed by the media to disclose what role the bank was to play in China Development's the upcoming board reshuffle.
He said that the bank would respect all the ministry's decisions.
Based on yesterday's closing price, the bank's postponed sale of China Development shares is expected to generate NT$3.56 billion.
According to Chen Mu-tsai, the bank also plans to release shares valued at NT$6.676 billion in other re-investment companies and vowed to complete the bank's privatization plan by the end of 2006 as scheduled.
The bank plans to submit its privatization plan to the finance ministry for review before April, detailing its sale of a 52 percent stake within three years in the open market, pending a final approval from the Securities and Futures Commission, Chen Mu-tsai said.
As of the end of last year, the bank registered a non-performing loan (NPL) ratio of 2.17 percent after writing off NT$11 billion in bad loans.
The bank aims to write off another NT$9.2 billion in bad loans this year, he added.
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