Fri, Aug 18, 2006 - Page 12 News List

Chinatrust Financial fails to move market watchers

WAIT AND SEE The embattled financial group said it planned to attract foreign investors and appoint independent board directors, but it's share price declined

By Amber Chung  /  STAFF REPORTER

The market responded coolly to Chinatrust Financial Holding Co's (中信金控) proposal to attract strategic foreign investors, as the company's share price fell yesterday.

Shares of Chinatrust Financial, the nation's sixth-largest financial group by assets, closed down 1.09 percent at NT$22.85 on the Taiwan Stock Exchange.

"We plan to raise funds by attracting foreign investors," Chinatrust Financial president James Sheu (許建基) said in a phone interview yesterday. "This is the best way forward for us."

The financial holding firm is engaged in talks with several interested foreign parties, Sheu said, declining to elaborate further.

The Chinese-language Economic Daily reported yesterday that Chinatrust Financial planned to sell a 20 percent to 25-percent stake worth about NT$40 billion (US$1.23 billion) to foreign investors by the end of this year.

Interested buyers reportedly include global banking giant HSBC Holdings Plc and Deutsche Bank, as well as private equity fund firms such as Carlyle Group, Newbridge Capital Inc and Macquarie Group.

Chinatrust Financial hoped to improve its corporate governance and gain access to China's market through such a deal, the report said. The Economic Daily also said that the deal would reduce the Koo family's control over the financial group. One of the richest families in Taiwan, the Koos' shareholding could be reduced from 20 percent to 30 percent, the report said.

Chinatrust Financial would award seats on its board to a strategic investor, Sheu said.

Furthermore, the company is seeking to hire outside figures as board directors and and has approached both local and foreign industry veterans and academics to fill such positions, the executive said.

Sheu confirmed that the Koos would reduce the ratio by which their shareholdings were collateralized from 87 percent to around 50 percent.

"This is the boss' commitment," he said.

In response, BNP Paribas Securities (Taiwan) Co's head of equity research Jesse Wang (王嘉樞) said that while it was promising that the firm had pledged to improve its corporate governance, nothing concrete had been done yet.

Wang downgraded his rating of Chinatrust Financial from "hold" to "reduce" last month, saying the move reflected "disappointment with the company's corporate governance in acquiring Mega Financial Holding Co (兆豐金控)."

The appointment of a few toothless independent board directors did not amount to an improvement of corporate governance, Wang said, adding that Taiwan still had a lot of improvement to make in this area.

The analyst said he would consider upgrading Chinatrust Financial if it delivered good results.

However, Chinatrust Financial's fundraising plans would amount to nothing if the financial regulator did not scrap the penalties it had imposed on the company, he said.

The Financial Supervisory Commission announced in June that it would freeze Chinatrust Financial's applications for fundraising, investment and establishment of overseas outlets as a result of irregularities involved in the firm's investment in larger rival Mega Financial.

"We will not revoke the punishment until the company submits its internal report on improvements for review," the commission's spokesperson Susan Chang (張秀蓮) said yesterday.

The commission said that the company must punish executives involved in the deal by Sunday.

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