Taiwan Mobile plans capital reduction

Taiwan Mobile Co (台灣大哥大), the nation's third-largest mobile operator, yesterday unveiled a plan to pay back NT$2.4 per share to shareholders by canceling 24 percent of its issued shares, aiming to boost its return on equity (ROE).

Taiwan Mobile's planned capital reduction would be the biggest in the sector -- compared to Chunghwa Telecom Co's (中華電信) 10 percent reduction and the 20 percent cut by Far EasTone Telecommunications Co (遠傳電信) -- which it said was part of its efforts to manage excess capital.

After the capital reduction, Taiwan Mobile would have 3.8 billion issued shares, a reduction of 1.2 billion shares from the current 5 billion, it said in a statement after the board had approved the plan.

"Taiwan Mobile generates ample cash from its operations each year ... The capital reduction plan will help boost our balance sheet," said Ruth Liaw (廖思清), a vice president of Taiwan Mobile's accounting department.

Liaw said there were no further plans for major investments following its NT$39.7 billion (US$1.2 billion) acquisition of parent company Taiwan Fixed Networks Co (台灣固網).

The payout would be around NT$12 billion, and Taiwan Mobile shareholders could expect to receive NT$2.4 a share in cash in the first half of next year, Liaw said.

Taiwan Mobile predicted that the capital reduction would boost its ROE to 30 percent next year, compared an 18 percent ROE, or NT$3.28 per share, last year.

"The capital reduction plan will have a positive impact on Taiwan Mobile as the nation's telecoms industry matures, and no further major investments are required in the future," said Lu Chia-lin (呂家霖), a telecoms analyst at Yuanta Core Pacific Securities (元大京華證券).

"The issue now is how telecoms companies can keep their asset size slim in order to boost ROE," Lu said.

Separately, Taiwan Mobile yesterday said its board had also approved a plan to write off NT$14.7 billion this year because of a major upgrade to its second-generation equipment.

The write-off would lead to a 15 percent reduction in depreciation next year and higher profits, the company said in a statement.

In the short term, the write-off would drive down Taiwan Mobile's earnings this year to a break-even level, Lu projected. Lu had previously forecast Taiwan Mobile would earn between NT$15 billion and NT$16 billion this year.

Shares of Taiwan Mobile rose 0.69 percent to finish the trading day at NT$36.30, Chunghwa Telecom shares fell 0.47 percent to NT$63 and Far EasTone shares declined 1.51 percent to NT$39.05.