Thu, Nov 04, 2004 - Page 11 News List

Chunghwa edges closer to privatization: experts

SELL-OFF Despite backing out of a plan to privatize China Airlines in 2002, the government is committed to selling its majority stake in Chunghwa Telecom


Chunghwa Telecom Co (中華電信) is on the track toward privatization despite the government's U-turn on a decision to sell off shares of the state-owned China Airlines (中華航空) entirely into the private sector. The policy change on China Airlines, raised doubts as to whether the government would follow through with plans to release control of other profitable state-run companies, particularly Chunghwa Telecom.

But, Tony Tsai (蔡東松), a senior telecom analyst with Taiwan Ratings Corp (中華信評), said Chunghwa's privatization would move forward.

"We believe the government will further unload its stake in Chunghwa Telecom, as it needs the proceeds to fill the budget gap," Tsai said. Taiwan Ratings Corp is a local arm of Standard and Poor's Rating Services. Chunghwa Telecom is required to allocate NT$24.9 billion, or more than half of its 2004 earnings target of NT$41.58 billion, to the national coffers this year, the company said.

In its latest large-scale share offerings in July last year, Chunghwa Telecom collected NT$9.8 billion from shares auctioned domestically and US$1.4 billion from in American Depositary Receipts.

The Ministry of Transportation and Communications, the biggest shareholder, still currently owns 65 percent of in Chunghwa Telecom's shares after selling off the remainder over the past three years. The ministry needs to sell another 15 percent before nation's biggest phone company can be considered privatized. The company controls nearly 80 percent of the market for broadband ADSL subscribers and has around 8 million mobile subscribers.

"We believe the direction [of privatizing Chunghwa Telecom] will remain unchanged," Tsai Tui (蔡堆), vice minister of the Ministry of Transportation and Communications said yesterday.

The ministry backed off from a plan to privatize China Airlines just a week after it experienced a deadly plane crash in Penghu County in 2002. "Chunghwa Telecom's situation differs from that of China Airlines. New plans for share sales are under way," Tsai Tui said.

The ministry is considering repeating is previous initiative of selling shares on the US and Taiwanese markets simultaneously to lower its holdings below 50 percent, which will make the company's privatization complete, Tsai said.

"Compared to China Airlines, Chunghwa Telecom should have an easier ride, as its stronger profitability will attract investors ," Taiwan Ratings' Tony Tsai said.

In the first nine months of this year, Chunghwa Telecom reaped profits to the tune NT$39.6 billion, or NT$4.11 a share, on revenue of NT$138.44 billion.

Investors snapped up Chunghwa Telecom shares, pushing the stock's price up to NT$62 -- a three-year high -- on the Taiwan Stock Exchange yesterday.

There are, however, obstacles to be cleared before the privatization can be completed. The ministry will only be allowed to sell more Chunghwa Telecom stocks after disputes over retirement issues are resolved. Originally, the government had planned to turn the state-run telecom service into a private company by the end of this year. But the plan was thwarted after the labor union representing 29,000 Chunghwa Telecom employees came to loggerheads with management over job security.

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