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China United Trust shares drop on holdout

Shares of blacklisted China United Trust and Investment Corp (中聯信託) plummeted close to the 7 percent limit on the local bourse yesterday after the troubled lender announced that potential investors had decided to wait, triggering market speculation about a broken fundraising plan.

China United shares fell by 6.58 percent to NT$3.55 on the Taiwan Stock Exchange, after it said in a filing it had decided to return some NT$700 million (US$21.36 million) to the originally interested investors, due to changes in its self-bailout program.

"We are still in talks with two other groups of investors. Our [self-help] fundraising or merger plan was not disrupted by the incident," China United president Vincent Chen (陳慈乾) said in a telephone interview yesterday.

The company still hoped to complete the deal as soon as possible, Chen said, without giving a timeframe.

Blacklist

China United is one of the four troubled financial institutions blacklisted by the government's restructuring fund, which took over the management of Taitung Business Bank (台東企銀) last month, as well as Enterprise Bank of Hualien (花蓮企銀) and The Chinese Bank (中華銀行) earlier this month.

The company plans to raise NT$9 billion in fresh capital to strengthen its weak financial structure and could wrap up the deal in March or April.

`Watching'

"We are watching the lender [China United] closely," Financial Supervisory Commission acting spokesman Austin Chan (詹庭禎) said yesterday.

The commission said it was aware of the refund offered to the local investor group, which was formed mainly by developers interested in China United's property assets.

The financial regulator preferred investment by one or two major investors, instead of a motley group, Chang said.

Downgraded ratings

Taiwan Ratings Corp (中華信評) on Monday downgraded its ratings on China United to `twBB' from `twBB+' with a negative outlook to reflect the company's weakened core earning capability and vulnerable capitalization.

The net value of China United dropped quickly to NT$166 million at the end of the third quarter of last year from NT$1.79 billion at the end of 2005.

This level would be lower after taking into account the latent credit costs and unamortized losses on impaired asset sales, said Taiwan Ratings, a local branch of Standard and Poor's Ratings Services.

It remained unclear whether the company could effectively execute the fundraising plan this year, the ratings firm said.

China United faces a real risk of takeover if its net value continues to deteriorate.

The takeover of three debt-ridden banks -- which reportedly had an aggregate NT$42 billion gap -- has triggered concern over the sufficiency of the government's restructuring fund, which is reported to be only worth NT$40 billion.
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