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Chunghwa ADR sale proves successful

The government yesterday conducted an overseas auction of a 5.8 percent stake in Chunghwa Telecom Co (中華電信), the nation's largest phone operator, after a domestic sale of a 1.27 percent stake on Thursday.

The sale of 505.39 million shares in the form of American Depositary Receipts (ADRs) on the New York Stock Exchange was oversubscribed six times, the Ministry of Finance said yesterday.

Each ADR was priced at US$16.99 per unit, or an equivalent of NT$56.05 for each common share, representing a premium of 9.91 percent over the NT$51 floor price for local investors on Thursday. Each ADR represents 10 common shares.

On Thursday, 120 million shares were sold to domestic investors at NT$51 per share, 5.03 percent lower than the closing price of NT$53.7.

To ease public debt, the government arranged its second auction of Chunghwa Telecom's shares owned by the Ministry of Transportation and Communications at home and abroad, following its first bidding in August last year.

This year's share sale helped inject NT$34.44 billion into state coffers, reducing the government's holdings in the telecom operator from 41 percent to 34 percent, the finance ministry said.

Deputy Minister of Finance Liu Teng-cheng (劉燈城) said last week that the government was not expecting to unload Chunghwa Telecom shares in the short term.

Taiwan Mobile Co (台灣大哥大), a private telecom operator, also sold 59 million shares it held in Chunghwa Telecom along with the government's in the form of ADRs, generating profits of NT$602 million, according to a statement filed with the Taiwan Stock Exchange yesterday.

Shares of Chunghwa Telecom advanced 2.23 percent to close at NT$54.9 on the local bourse yesterday, compared with a decline of 0.03 percent on the TAIEX.

In a report issued on Tuesday, Macquarie Research Ltd retained its "neutral" recommendation on Chunghwa Telecom, citing competition in the market of wireless, wired, broadband and IPTV (Internet Protocol Television) products, compounded by regulatory risks.

"The bull case lies in capital management, particularly share buybacks or capital reductions, while the opposing bear case is that competition, particularly wireless, will erode margins and hurt dividends, perhaps faster than expected," Macquarie said.

The research house set a 12-month target price at NT$54.39 and suggested buyers wait till the price drop to the low NT$50s.

"On the flip-side, the risk to our forecasts is increasing, not only from rising competition, but also from the new regulator, the National Communications Commission," Macquarie said.
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