Shin Kong Financial plans receive a positive response

Shares of Shin Kong Financial Holding Co (新光金控), the nation's eighth-largest financial group by assets, closed unchanged yesterday on the local bourse, seemingly reflecting a positive market view about the company's plan to invest in MasterLink Securities Corp (元富證券) announced on Tuesday.

Shin Kong Financial shares fluctuated in 3.09 percent range before closing unchanged at NT$35.60 (US$1.1) on the Taiwan Stock Exchange yesterday. MasterLink shares gained 1.59 percent to close at NT$12.80 in the meantime.

`Positive'

"We are positive about the deal, as Shin Kong Financial is expected to develop a balanced business lineup through the investment," Chu Yu-chun (朱玉君), an analyst who tracks the financial sector at SinoPac Securities Corp (建華證券), said in a phone interview yesterday.

Shin Kong Financial on Tuesday announced a plan to acquire a 16 percent stake in MasterLink for about NT$3 billion, or less than the brokerage's book value of NT$13.6 per share, on the open market within the next 12 months.

MasterLink is the nation's ninth-biggest brokerage with a market share of 3.72 percent, according to SinoPac Securities data.

The partnership could help strengthen the company's securities business, after the insurance-centric financial group's effort to expand its banking arm by acquiring Macoto Bank (誠泰銀行) last year and United-Credit Commercial Bank (聯信銀行) in 2004.

Shin Kong Financial controls Shin Kong Life Insurance Co (新光人壽), one of the nation's top three life insurers, and other subsidiaries including Shin Kong Securities Co (新壽證券) and Shin Kong Bank (新光銀行).

"The planned alliance is a mutually beneficial partnership to boost both parties' profits and cross-selling effects," Shin Kong Financial spokesman Victor Hsu (許澎) said.

Shin Kong financial expected a return of 6 percent per annum from the investment, he said.

The partnership allows MasterLink access to the financial group's resources and banking channels while the brokerage's underwriting expertise and overseas outlets in Hong Kong and Shenzhen, China, can help Shin Kong Financial expand abroad, Hsu added.

The executive remained tightlipped about an ultimate acquisition of the securities house, saying that this would depend on how the partnership works over the next couple of years.

Shin Kong Financial said it would tender its application to the Financial Supervisory Commission for approval of the investment plan tomorrow.

In response, MasterLink said it welcomed the investment with an open attitude, as long as the partnership benefits its shareholders, profitability, and employees, and that "a merger can be discussed and there is unlimited possibility of further cooperation."

Takeover

It is only 4 percent short of the figure Shin Kong Financial would need to meet the required shareholding of 25 percent for a takeover, as Shin Kong Life already controls a 4.99 percent stake in MasterLink, according to the brokerage's figures.

However, to achieve this goal, Shin Kong Financial would have to compete with a group of potential rivals, including Fubon Financial Holding Co (富邦金控), which controls a 5.46 percent stake in Masterlink, and China Development Financial Holding Corp (開發金控) with a 4.77 percent stake, , the data showed.

Meanwhile, SinoPac Securities did not recommend Shin Kong Financial, which has met a target price of NT$35 under a widening banking loss, while appearing positive about MasterLink with a target price of NT$17.