MOTC to auction off a 3% stake in Chunghwa

Chunghwa Telecom shares opened low yesterday and fell by around 4 percent on the back of the government's announcement yesterday. PHOTO: LO PEI-DER, TAIPEI TIMES

The Ministry of Transportation and Communications is scheduled to auction off a 3 percent stake, worth NT$18 billion (US$566 million), in Chunghwa Telecom Co (中華電信) after the stock market closes on Tuesday, the telecom company said in a filing made to the Taiwan Stock Exchange yesterday.

The 3 percent stake, or about 289.43 million shares, will be sold to domestic investors at a discount of at least 6 percent on its average closing price over the last 10 trading sessions before the auction, the statement said.

Shares of Chunghwa Telecom dropped 3.79 percent to close at NT$63.4 yesterday.

Chunghwa Telecom, the nation's largest telecom operator, will take bids before 3:30pm and announce the results after 4pm that day. The auction will take place two days before the company goes ex-dividend on Aug. 11.

The company plans to pay a cash dividend of NT$4.70 per share to those who become Chunghwa Telecom shareholders before Aug. 12, the statement added.

Lu Chia-lin (呂家霖), an analyst with Yuanta Core Pacific Securities (元大京華證券), reacted positively to the news.

"As there is no turning back the privatization of Chunghwa Telecom, I don't think the discount will have a big impact," he said.

However, the timing of the decision came as a surprise, as the company is still struggling to obtain approval from the US Securities and Exchange Commission (SEC) to issue American Depositary Receipts (ADRs).

Lu reminded interested investors that there were still risks regarding the stock, while company chairman Hochen Tan (賀陳旦) said that investors would definitely profit from buying the shares.

As the ministry hopes to sell the state-controlled company's stock to as many buyers as possible, retail investors will be given priority, with each allowed to purchase between 1,000 and 3,000 shares, the company said in the statement.

The remainder will then go to institutional investors, with each restricted to a maximum of 28.943 million shares, the statement said. Foreign investors including overseas Chinese are not permitted to take part in the auction, it added.

The ministry has hired Capital Securities Corp (群益證券) to manage the auction. The securities firm estimates that more than 90,000 retail investors will participate in the auction.

Chunghwa Telecom registered with the SEC on July 7 to sell as many as 1.29 billion shares in the form of ADRs, or about 13 percent of the company's shares. But the company on July 29 applied to increase the size of the offering to as many as 1.64 billion shares, or a 17 percent stake, without giving a reason for the increase.

The completion of the sale of 1.64 billion shares will lower the ministry's stake in Chunghwa Telecom to below 50 percent, from the current 65 percent, putting the telephone operator into private hands.

The Chunghwa Telecom Workers' Union (中華電信工會) has fiercely opposed the privatization plan, however, saying it will hurt employee benefits. Responding to the latest development, the union yesterday said the auction would end up profiting certain investors, instead of the public.

"It's too speculative. Too much political manipulation is involved," union head Simon Chang (張緒中) said.

Chang said the ministry had only allowed a few days for interested retail investors to prepare for the auction, which was not enough time to make the policy known.

"We don't oppose privatizing the company, but the method must be legal and provide equal opportunities for the general public," he said.

Chang also urged the government to halt the company's ADR issuance, saying suitable approaches should be hammered out to distribute Chunghwa shares to the whole nation, similar to what Singapore's government has done.