The failure to sell a major stake in state-controlled Chang Hwa Commercial Bank Ltd (
The government had planned to introduce a foreign strategic partner into Chang Hwa Bank by issuing 1.4 billion new shares, or about 22 percent of the lender, in form of global depositary receipts (GDR) by June.
The government's original plan was to offer another 1.12 billion shares following this to help boost the foreign investor's stake in the bank to 40 percent stake.
But, lower-than-expected bids from potential investors have stalled the offering, the Ministry of Finance said last Friday. The government, which now owns about 23 percent of the nation's No.6 bank by assets, is scheduled to announce an alternative share sale this week.
"The failure upset the government's efforts to encourage mergers among 12 state-run lenders [to reduce their numbers to] six by the end of the year," said Hsu Chen-min (
The government had aimed to use the landmark deal as a catalyst to speed up consolidation in the nation's overcrowded financial sector and spur privatization of state-run banks.
The efforts are part of a bigger reform plan announced by President Chen Shui-bian (
Susan Chu (
If state-controlled banks could set a good example, local rivals would follow suit out of fear of missing out on good targets and losing their competitive edge, she said.
To fulfill Chen's plan, the government should let market forces decide the pricing mechanism, rather than stubbornly sticking to a certain price, especially when most local lenders are unable to provide transparent financial reports, Hsu said.
Government officials, however, have reason to justify their stubbornness. They are under heavy pressure from legislators to sell state-owned lenders without giving big discounts.
Minister of Finance Lin Chuan (
The turbulence in the GDR issuance has dragged down Chang Hwa Bank's stock price by nearly 19 percent since the beginning of the year. The bank's shares closed at NT$17.8 on the Taiwan Stock Exchange last Friday.
To stimulate more movement among local financial institutions, Hsu said the government should urge local banks to boost financial transparency to minimize pricing differences.
William Lin (
Though the government's plan was based on the successful rescue of Japan's Shinsei Bank Ltd -- formerly a debt-ridden bank -- in just a few years, the approach may not suitable for Taiwanese banks, he said.
What is more important, is that "we have no time to waste as Taiwanese banks will soon lose competitiveness to their counterparts in neighboring nations, which are expanding at a faster pace than local lenders," Lin said.
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