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Taiwan in equity boom: Merrill Lynch

With low interest rates and high yielding stocks, Taiwan is the country most likely to benefit from the boom in private equity in Asian markets, Merrill Lynch said.

"Asia's private equity boom looks like it is a long way from fizzling out," Merrill Lynch said in a research note released over the weekend.

Private equity funds have cash, while Asia, excluding Japan, offers low valuations and robust economic growth, Merrill Lynch said, predicting there are more deals in the pipeline.

The US investment bank cited an annual investors conference held in Hong Kong to illustrate the eastward push of private equity. This year the conference attracted 1,000 attendees while just three years ago it had attracted less than half that number.

Taiwan is well placed to benefit from the investment drive.

"Taiwan is a stand-out due to [its] low benchmark rates and high yielding names," the report said.

Given benchmark interest rates of around 2.2 percent and yields in excess of 4.5 percent, a large number of Taiwanese companies appear as potential targets, it said.

The nation's technology, telecom and cement companies are the key targets, including Powerchip Semiconductor Corp (力晶半導體), the nation's largest computer memory chip maker, Taiwan Cement Corp (台泥) and U-Ming Marine Transport Corp (裕民航運), Merrill Lynch said.

Powerchip, Taiwan Cement and U-Ming shares gained 0.48 percent, 1.7 percent, and 1.97 percent, respectively, to close at NT$21.1 (US$0.65), NT$29.85 and NT$41.5 on the Taiwan Stock Exchange on Friday.

Private equity funds have been active in the local market since the beginning of this year. Key examples includes MBK Partners Ltd's acquisition of 60 percent of China Network Systems Co (中嘉網路) in October, Carlyle Group's purchase of a majority stake in Eastern Multimedia Co (東森媒體科技) in July and Newbridge Capital Inc's purchase of 23 percent of Taishin Financial Holding Co (台新金控).

The investment spree reached a climax when Washington-based Carlyle offered on Nov. 24 to buy out Advanced Semiconductor Engineering Inc (日月光半導體), the world's largest chip tester and packager.

If it is finalized, the deal could total US$5.46 billion, making it the biggest acquisition in Taiwan.

The buyout frenzy, however, has raised official eyebrows on concerns that the country may lose a number of major companies to foreigners, or that local firms may avoid long-standing controls on investment in China.

The Financial Supervisory Commission said last week that it would require private equity fund operators to demonstrate their capacity to manage the troubled banks they have targeted for investment. The commission expects to see evidence that purchases will be sustained for at least three years.

The commission is collecting information in countries like the US and South Korea and studying the feasibility of placing restrictions on predatory funds.
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