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UMC halts share trading, starts capital reduction

"The company should be able to absorb the impact of the capital reduction due to its huge cash position on hand and strong cash flow generation."

Taiwan Ratings release

United Microelectronics Corp (UMC, 聯電) will temporarily halt trading on the Taiwan Stock Exchange beginning today as the world's second-largest contract chipmaker exercises capital reduction to boost its return on equity for shareholders.

The company will suspend share trading until Oct. 8 and will resume trading on the main bourse after completing its capital reduction, the company said last month in a filing to the stock exchange.

Shares of UMC rose NT$0.45, or 2.4 percent, to close at NT$19.20 yesterday.

The stock has edged down 2 percent since Jan. 23 when the board of the Hsinchu-based chipmaker approved the capital reduction plan.

The chipmaker intends to pay back NT$57.39 billion (US$1.73 billion), or NT$3 per share, to its shareholders by canceling NT$5.74 billion in outstanding shares, or 30 percent of its overall 19.13 billion shares, the company said at the time.

Taiwan Ratings Corp (中華信評) said the capital reduction exercise should have a limited impact on UMC, citing the chipmaker's strong cash flow protection measures and a conservative level of financial leverage.

"The company should be able to absorb the impact of the capital reduction due to its huge cash position on hand and strong cash flow generation," Taiwan Ratings, a local arm of Standard & Poor's, said in a release on Sept. 12.

As of the end of June, UMC had NT$93.6 billion in cash and short-term investments, along with unused short-term credit facilities of NT$8.4 billion, compared with total debt of NT$32 billion, the ratings agency said.

UMC is competing with Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) in a sector with strong business cyclicality and high capital and technology intensity.

The company also faces increasing pricing pressure, especially on services using advanced process technology.

After completing the capital reduction, UMC's paid-in capital will drop from NT$189.5 billion to NT$132.1 billion and issued shares will be lowered from 17.78 billion to 12.39 billion.

SinoPac Securities Corp (永豐金證券) said that UMC could report an after-tax NT$1.22 earnings per share following its capital reduction exercise.

Lehman Brothers said on Tuesday the company would see a 20 percent to 25 percent quarter-on-quarter increase in wafer shipments in the second half of the year, with an earning-per-share of NT$1.3 this year and NT$1.5 next year.
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