Taiwanese may soon have another investment option as the Ministry of Finance (MOF) mulls the possibility of issuing convertible bonds to sell government shares in assorted financial institutions and state-run enterprises to finance public works projects.
Minister of Finance Lee Sush-der (李述德) floated the idea in a recent seminar on financial reform and unnamed ministry officials confirmed yesterday that it could translate into action immediately as measures and equipment are already in place.
Convertible bonds, or converts, give the holder the option of exchanging bonds for a predetermined number of shares in the issuing companies, which are limited to Chang Hwa Commerical Bank (彰化銀行), Hua Nan Commercial Bank (華南銀行), First Financial Holdings Co (第一金控), and other financial institutions where the government holds different ratios of stakes.
Stocks in state-run enterprises such as China Steel Corp (中鋼) and Chunghwa Telecom Co (中華電信) could also be traded as the ministry has envisioned.
Lee told the seminar that the ministry was in no hurry to dispose of government shares in those companies, but that it intended to release them in the form of convertible bonds that offer lower interest rates but provide buyers the option to trade them for stocks.
The minister said the government owns about 15 billion shares valued at NT$700 billion (US$23 billion) in various banks.
“Those assets may generate greater wealth if well managed,” Lee told the seminar in Taipei on Wednesday. “The government plans to exchange them for cash and then use the money to finance public construction projects.”
Convertible bonds, Lee said, would give the government an extra option to manage its assets and provide an extra means to adjust its finances.
Norman Yin (殷乃平), a professor at National Chengchi University’s Department of Money and Banking, agreed at some level.
Yin said converts are commonplace in investment markets abroad, but that the participants are mostly private companies rather than governments. If the government is serious about issuing convertible bonds, Yin said that measures must be drawn up to prevent business groups from taking control of business involving public interests.
“It is better to limit the trade to individual investors, although the bonds would inevitably end up in the hands of business groups if they consider purchases to be desirable,” Yin said.
Charles Yeh (葉銀華), director of the Graduate Institute of Finance at Fu Jen University, said he had no objection to issuing convertible bonds, but shared worries that it would benefit business groups.
Yeh said individual investors are less equipped financially to purchase converts when they are available in the market.
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