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Forex deal costs telecom giant as NT dollar gains

Chunghwa Telecom Co (中華電信), the nation's biggest telecom operator, yesterday said foreign losses could widen on a stronger local currency, stemming from a foreign exchange derivatives contract, but it did not plan to wrap up the agreement anytime soon.

Chunghwa Telecom projected losses from the contract would amount NT$1.5 billion (US$49.9 million) based on the assumption that the New Taiwan dollar would rise to an average of NT$30 in the next 10 years. The firm said the losses were still within the acceptable range.

But investors are concerned about the impact on the company's bottom line as it is difficult to expect a jump in profits for local telecoms given the country's saturatured market.

"Foreign losses will increase because of rising New Taiwan dollar [against the greenback]," chief financial officer Joseph Shieh (謝劍平) told an investor's conference yesterday.

If the NT dollar appreciated to NT$28 against the US dollar, the losses would widen to NT$3.5 billion from NT$1.5 billion estimated previously, he said.

"We will not consider unwinding the contract as the impact will subside over time. We will devise remedy measures at the proper time," Shieh said, stressing that those losses are unrealized valuation losses.

The NT dollar dropped to NT$30.18 against the greenback yesterday, down NT$0.17 from a 10-year high of NT$30.01 on Wednesday.

Chunghwa Telecom posted its net income for last year yesterday, NT$48.25 billion on consolidated base, an increase of 7.5 percent compared to NT$44.89 billion in 2006. Revenues expanded by 7 percent to NT$197.39 billion at an annual pace.

Chunghwa Telecom said earlier this month that it had lost NT$4 billion from the foreign exchange derivatives contract over the past six months.

As the company takes a more aggressive stance to revitalize under-developed assets via a newly established property development firm, investors yesterday were curious about how this would affect the firm's profits.

Shieh said Chunghwa Telecom would book -- at a minimum -- NT$2.25 billion in profits in the next two to three years from two land development projects.

He said the company was working with local construction firms Ruentex Development Co (潤泰創新國際) and Kindom Construction Co (冠德建設) to build housing complexes and office building in Greater Taipei area.

Chunghwa Telecom has 440 hectares of land, mostly in the northern part of the country, and around 10 percent was ready for immediate development, he said.

Separately, Chunghwa Telecom said prosecutors and investigators have visited its headquarters to ask the company to provide more written information about a bid-rigging probe involving its electronics suppliers.

Two companies are suspected of rigging as many as 50 electronics procurement bids arranged by Chunghwa Telecom between 2003 and 2005.

The deals were worth as much as NT$900 million, the Central News Agency (CNA) reported.

Chunghwa Telecom declined to confirm the numbers in the CNA report, but said it would cooperate with the probe.
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