Analysts praise Taishin's winning Chang Hwa bid

Taishin Financial Holding Co's (台新金控) higher-than-expected bid to secure 1.4 billion preferred shares of small lender Chang Hwa Commercial Bank Ltd (彰化銀行) offers a much-needed contribution to the government's plans to consolidate the banking sector, but Taishin Financial will have to suffer a short-term impact on its stock performance, analysts said yesterday.

Taishin Financial, the nation's eighth-largest financial-service provider by assets, beat six other competitors, including the seemingly unbeatable state-owned Temasek Holdings of Singapore, to acquire a 22-percent stake in Chang Hwa through a private placement yesterday.

Taishin Financial offered NT$26.12 (US$0.82) per share, much higher than the floor price of NT$17.98 a share which Chang Hwa's board set on June 24.

"The price is way too high," said Renee Yang (楊文靚), an analyst at Yuanta Core Pacific Securities Corp (元大京華證券).

Among the nation's 14 financial holding companies, Taishin Financial is merely a medium-sized service provider. If it aims to jump to the top five, it is unavoidable that it will have to pay dearly, she said.

One day before the auction took place, the Ministry of Finance announced several incentives to sweeten the bid, including its promise to help the winning bidder gain management control over Chang Hwa. It also offered to sell the government's shares in the lender to the winning bidder, pending approval by the legislature.

The government now owns around 18 percent of Chang Hwa, the nation's sixth-largest lender by assets, including the shares it holds through First Financial Holding Co (第一金控).

Taishin Financial would therefore have to fork out nearly NT$60 billion to acquire the total stake of up to 40 percent in the small lender, which would take two to three years to amortize, Yang said.

In the short term, the landmark transaction will help push up Chang Hwa's shares and drive down those of Taishin Financial on the local bourse, she said.

"But Taishin Financial must have focused on the long-term benefits brought by Chang Hwa to expand its market share and banking units," Yang said.

Jesse Wang (王嘉樞), head of research with BNP Paribas Securities Taiwan Co, agreed that Taishin Financial's stock performance might be dealt a blow in the short-term, but "its leading brand position will be secured."

From the government's point of view, its goal of completing the second stage of financial reforms by the end of this year is 90 percent complete, Wang said.

"The ball has rolled forward," he said, adding that Taishin Financial's great leap would put extreme pressure on other financial players, like Chinatrust Financial Holding Co (中信金控), to locate potential targets for mergers.

"As long as one such case is completed, others will follow," Wang said.

Minister of Finance Lin Chuan (林全) yesterday issued only a short comment on the transaction, saying that he was very happy and satisfied, and that he would spend more time sorting out some details of the deal.

It is unknown whether the ministry is surprised by the result as market analyses had anticipated that Singapore's Temasek Holdings would secure the stake. One of the government's financial reform policies is to have at least one local financial institution run by a foreign entity, or to have a majority foreign shareholder by the end of next year.