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SinoPac to buy Grand Cathay

SinoPac Holdings (永豐金控), the nation's ninth-biggest financial group, agreed to buy 75.32 percent of Grand Cathay Securities Investment Trust Co (大華投信) for NT$903.37 million (US$27.34 million) to boost its wealth management business, the company said in a statement yesterday.

The acquisition, with an offer of NT$35.88 per share, will allow SinoPac to fully control the entire investment trust firm, as SinoPac currently holds a 24.68 percent stake in Grand Cathay.

"The company has a complete array of local mutual funds and a record of bright returns that are expected to enhance SinoPac's cross-selling and wealth management business," SinoPac said in a statement released yesterday.

The company did not elaborate on when the takeover deal would be completed.

SinoPac hopes to boost the amount of its assets under management to NT$100 billion from the current NT$60 billion after taking Grand Cathay under its group umbrella, SinoPac's spokesman Richard Chang (張立荃) said.

The subsidiary-to-be is expected to see its return on equity (ROE) climb to 25 percent this year which, along with an assets increase, could improve the ROE of parent group to approximately 15 percent, he said, without providing any current ROE figures.

Meanwhile, SinoPac announced in filings to the Taiwan Stock Exchange yesterday that a cash dividend of NT$0.30 a share would be paid this year, and said it would reduce NT$196.5 million in paid-in capital by buying back and canceling its own shares.

The company is also mulling cutting the capital of its banking arm and giving the money to its parent group, Chang said without giving the planned figure.

SinoPac chief executive officer Paul Lo (盧正昕) said last November that the company was looking to expand through mergers and acquisitions of rivals in neighboring markets such as Vietnam this year.

Macquarie Research on Thursday downgraded its rating on SinoPac to "neutral" from "outperform" with the target price cut to NT$15.03 from the previous NT$18.23, because of a poor outlook on profitability and concerns over asset quality at the former International Bank of Taipei (IBT, 台北國際商銀) that it took over last year.

The execution of the IBT merger has been painfully slow and actual integration is expected to be difficult and take much longer than management had hoped, the Australian brokerage said in a report released on Thursday.

The deterioration in the quality of assets at the former IBT last year was clearly worse than management had anticipated. This highlights IBT's apparent lack of transparency and sparked concerns that last year's provisioning may not have been enough, the report read.

Macquarie's concern over the mortgage business in Taiwan, which they believe has been led by speculative buying of real estate that may cool this year, spills over to the financial group since mortgages make up about 44 percent of the merged bank's loan book, it said.

Merrill Lynch said on Wednesday that SinoPac was one of their recommended investment picks, considering its profits growth potential next year after a further cleanup of bad loans in the first half of this year.
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