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Bank's share-sale rules scare off buyers

The share price of Taiwan Business Bank (台灣企銀) plummeted on the local bourse yesterday, as the bank's complicated rules for its share sale were met with a lack of enthusiasm from investors.

The bank's shares plunged 5.84 percent to NT$12.10 on the Taiwan Stock Exchange.

The board of directors at Taiwan Business Bank, in which the government currently controls a 44-percent stake, decided to sell the state-owned shares in a 100 percent share swap, the bank said in a statement released late Thursday.

According to the rules of the sale announced on Thursday, the bid-winning buyer will have to acquire the bank's shares with both its common shares and new preferred shares priced at NT$10 per share, valid for six months after issuance.

The buyer will need to pay in cash to redeem the preferred shares when they are due, the statement read.

The value of the preferred shares must make up between 25 percent and 55 percent of the value of the transaction, the bank said.

Meanwhile, the bank demanded that the buyer not change employment conditions or lay off staff within two years after the takeover, and retain the policy of granting loans amounting to a total of NT$320 billion (US$9.94 billion) per year to small and medium enterprises (SMEs).

"We think these complicated game rules for the share sale have more disadvantages than advantages for buyers," Yuanta Core Pacific Securities Co (元大京華證券) analyst Tess Wang (王中秀) said.

Interested bidders did not seem positive about the conditions, which would likely give the government a continued say in the buyer's business activities because of the requirement to maintain the policy of granting loans to SMEs. It would also result in huge pension costs stemming from the job-security guarantees to the bank's employees, Wang said.

The strict conditions could make bidders more conservative about making offers, Wang said.

He added that buying back preferred shares and the personnel costs could result in buyers spending nearly NT$20 billion on the deal.

However, Chu Yu-chun (朱玉君), a finance analyst at SinoPac Securities Corp (建華證券), seemed more positive about the requirements, saying that the market overreacted and consequently depressed the bank's share price yesterday.

The strategy of conducting a share swap using both common and preferred shares can prevent buyers' shareholdings from being seriously diluted, which meets most of the interested financial holdings firms' needs, Chu said.

Nonetheless, the bank's accumulated bad loans, which could amount to more than NT$50 billion, could pose a risk to interested buyers planning to expand their operations by means of the acquisition deal, she said.

Taiwan Business Bank, which has assets worth US$32.3 billion and 124 branches nationwide, is slated to open the bidding next month as part of the government's policy of reducing the number of state-run banks to six by the end of the year.

The bank has reportedly attracted bids from six local financial holdings: Fubon Financial Holding Co (富邦金控), Mega Financial Holding Co (兆豐金控), First Financial Holding Co (第一金控), Chinatrust Financial Holding Co (中信金控), Cathay Financial Holding Co (國泰金控) and E.Sun Financial Holding Co (玉山金控).

Both analysts said Chinatrust Financial could be the most aggressive player and the beneficiary of the bank's SME client lineups after the takeover.

However, the company remained evasive about the deal, with its spokesman Lin Shiaw-pin (林孝平) saying only that it will carefully consider an acquisition deal that would offer the best value to its shareholders.

Lin declined to comment on the bank's conditions for the share sale.
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