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Government to increase China Development holding

The government has decided to increase its holding in China Development Financial Holding Co (中華開發金控) and will solicit proxy votes to win over the management in the shareholder meeting scheduled for June, a government official said yesterday.

The government will also drum up support from institutional investors including foreign shareholders to vote for government-appointed directors, Deputy Minister of Finance Liu Teng-cheng (劉燈城) said.

Liu's comment came after none of the financial holding firm's private shareholders had reported a stake of over 15 percent as of Wednesday, four months before its next shareholder meeting, the deadline given by the government.

In accordance with the guidelines the ministry outlined in September for unloading public stakeholdings in financial institutions to boost the banking sector's competitiveness, China Development is one of the five entities from which the government is seeking to withdraw because it doesn't hold more than half of the board seats.

The government holds more than 10 percent of China Development's shares and holds six seats out of 21 on its board.

In addition, one independent director was appointed by the ministry, giving the government control of one third of China Development's board.

The major private shareholder is the Chinatrust Group (中信集團), which owns more than 9 percent of shares.

However, its stake including shares owned by affiliates is 15 percent.

Because the Chinatrust Group has not raised its stake as required by the ministry, the government vowed to maintain its control of the nation's 12th-largest financial services provider, Liu said.

However, in the best interest of shareholders and the company's operations, the government is ready to negotiate with the Chinatrust Group, which is led by the Koo family.

"We're willing to sit down with them to talk as long as the bottom line is upheld, i.e. the management status quo is maintained, with the chairman appointed by the government and the president chosen by private shareholders. The government must also control not less than one-third of the board seats," Liu told reporters.

Lin Cheng-yi (林誠一), who was appointed by the government, chairs China Development and Chinatrust Group's Angelo Koo (辜仲瑩) serves as president.

If negotiations fail, the ministry is considering increasing its share significantly or seeking a majority on the board, the official added.

The other four financial institutions where the government plans to withdraw stakes are Waterland Financial Holdings (國票金控), Fuhwa Financial Holding Co (復華金控), Bank of Overseas Chinese (華僑銀行) and Chang Hwa Commercial Bank (彰化銀行).

The government will consider putting the shares on the open market when their major private shareholders boost their holdings to between 15 percent and 20 percent -- depending on the initial capitalization size and corporate governance -- four months before the re-election of the boards of these companies.

Shares acquired by using insurance capital would not be valid.
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