Fri, Dec 08, 2006 - Page 12 News List

Regulator mulling regulating on leveraged buyouts

By Amber Chung  /  STAFF REPORTER

The nation's top financial authority is mulling whether to regulate leveraged buyouts amid a frenzy of private equity investments in Taiwan since the beginning of this year.

They are considering limiting debt ratios in leveraged buyout cases as high debt could significantly weaken the financial structure of the surviving entity, Wu Tang-chieh (吳當傑), director general of the Securities and Futures Bureau, said yesterday.

In conventional practice, international buyout funds usually set up a locally incorporated subsidiary and merge with the target. The surviving merged entity then inherits the debt incurred by the original subsidiary, Wu explained.

This is not in the interests of the merged firm or the shareholders, he added.

The regulator is collecting information with reference to similar limitations on such business behavior in other countries, Wu said.

The regulator made the remarks in the wake of the US private equity fund Carlyle Group's offer to acquire 100 percent of Taipei-based Advanced Semiconductor Engineering Inc (ASE, 日月光半導體) last month.

Carlyle intended to set up a subsidiary in Taiwan to conduct the buyout of ASE through a tender offer, Wu said.

In related news, the Financial Supervisory Commission yesterday fined Jih Sun Financial Holding Co (日盛金控) NT$2 million (US$61,919) for failing to meet the regulatory minimum capital adequacy requirement, making it the first of the nation's 14 financial groups to be penalized for such a transgression.

Jih Sun Financial, Taiwan's No.13 financial group, saw its capital adequacy ratio drop to 47.09 percent in June, far below the statutory 100 percent, which showed that the company lacked proper financial planning measures, the commission said.

The weakened financial structure resulted from the company's decision to write off bad debt losses in one hit, while an expected foreign investment injection failed to arrive in time to cover the financial gap, it said.

Jih Sun Financial announced in May it would sell a 31.8 percent stake to Shinsei Bank Ltd of Japan for NT$12 billion through a private placement.

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