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China Development posts close to NT$5bn in losses

China Development Financial Holding Co (中華開發金控) yesterday posted NT$4.495 billion (US$139 million) in losses after its two subsidiaries converted their debt holdings in cash-strapped Cosmos Bank (萬泰銀行) into shares, a filing with the Taiwan Stock Exchange revealed last night.

The debt write-off is sure to weigh on the prospects of the nation's 12th-largest financial provider, erasing 20 percent of its profit target of NT$20 billion for this year.

The company's filing stated that its subsidiaries -- China Development Industrial Bank (中華開發工銀), which had held NT$3.125 billion in convertible bonds in Cosmos, and Grand Cathay Securities Co (大華證券), which had held NT$4.625 billion in subordinated debts in Cosmos -- posted NT$1.8125 billion and NT$2.6825 billion in losses respectively after the debt-to-equity conversion.

Despite market speculation that China Development spent NT$2 on each of Cosmo's shares, the company yesterday refused to comment on its shareholding in Cosmos.

Negotiations on the debt-to-equity scheme are still ongoing, the company said.

Nevertheless, Cosmos, which had been under increasing regulatory pressure to recapitalize or face government receivership after it suffered considerably from the default of unsecured consumer loans, yesterday finalized an agreement to sell a controlling stake to the SAC Private Capital Group LLC, a US hedge fund, and to GE Money, the global consumer lending unit of General Electric Co. SAC and GE Money agreed in principle to invest US$650 million and US$250 million respectively.

After SAC and GE's takeover, Cosmos is expected to reshuffle its board and top management at its next meeting scheduled for Dec. 5.

Cosmos' capital would be boosted from NT$45 billion to NT$200 billion, including the fundraising proposal passed yesterday.

The Financial Supervisory Commission's latest statistics show that Cosmos' non-performing loans ratio deteriorated slightly to more than 5 percent last month, from 4.6 percent in August. The bank recorded NT$47.3 billion in cash-card loans last month.
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