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Shin Kong Financial says NT$8bn cash injection under way

Shin Kong Financial Holding Co (新光金控), the nation’s sixth-largest financial service provider by assets, said yesterday it should complete a NT$8 billion (US$244.7 million) capital injection from Japan’s Dai-Ichi Mutual Life Insurance Co by mid-December, hoping to boost the ratio of risk-based capital (RBC) for its insurance arm to 250 percent.

“The capital injection represents a confidence boost from Dai-Ichi in its years-long strategic alliance [with Shin Kong],” Shin Kong Financial Holding president Victor Hsu (許澎)said by telephone.

Upon the plan’s completion, Dai-Ichi will become Shin Kong’s largest shareholder with a 14.9 percent stake, up from 5.99 percent, Hsu said. The purchasing price per share will be determined mid-next month in accordance with its average over a three-month period.

The price is likely to fall between NT$13 and NT$14 per share, depending on the fluctuations over the next month.

Dai-Ichi would face regulatory complications in Japan if its overseas stake exceeded 15 percent and will therefore keep its stake in Shin Kong below that threshold.

Shares of Shin Kong Financial rose 4.11 percent to NT$7.6 on the Taiwan Stock Exchange, outperforming a drop of 1.62 percent on the benchmark TAIEX. Taiwan Ratings Corp (中華信評) said in a statement yesterday that Shin Kong’s recapitalization plan would not affect its ratings and outlook.

SinoPac Securities Corp (永豐金證券) believes the new capital from Dai-Ichi will “breathe life into Shin Kong,” which has seen earnings erode and share prices plunge as a result of its subprime-related investments, the local brokerage said in a note yesterday.

On the local bourse, Shin Kong Financial shares have plummeted nearly 66 percent this year, the stock exchange’s tallies showed.

The capital injection via a private placement will be raised through the combination of common shares of Shin Kong Financial, which Shin Kong Financial will use to re-inject capital into its subsidiary, Shin Kong Life Insurance Co (新光人壽), and preferred shares of Shin Kong Life.

Shin Kong Financial hopes to raise the RBC ratio of its life insurance arm, which suffered more than NT$15 billion in losses as of last month, to 250 percent if the company succeeds in cutting losses from share investments and currency exchanges this quarter.

Shin Kong Life had NT$15 billion in currency exchange losses — as a result of fluctuations in the local currency over the past few months — and another NT$5 billion in losses from exposure to the subprime market, Hsu said.

The company said, however, that it may capitalize on the local property market, with prices currently “reasonable,” Hsu said.

The company has spent NT$85 billion on acquiring real estate, including seven commercial buildings in Neihu Science Park and a planned hotel in Xinyi District (信義).

The company plans to pump another NT$20 billion into property and has shifted its focus to commercial properties with fixed incomes, such as monthly rentals with a guaranteed 5 percent return.
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