Taiwan’s lawmakers are demanding an investigation into Mega International Commercial Bank Co (兆豐國際商銀) over concerns that the lender failed to secure adequate collateral for loans to three private equity firms including TPG Newbridge Capital.
Mega Bank loaned NT$22 billion (US$672 million) to TPG and provided funds to Carlyle Group and Longreach Group in 2006 for acquisitions in Taiwan, Hsu Shi-peng, an aide to Chinese Nationalist Party (KMT) Legislator Alex Fai (費鴻泰), said by telephone yesterday.
Mega Bank did not ask for more collateral after the shares pledged by TPG fell this year, putting the bank at risk in case of a default, she said.
The government holds a 17 percent stake in Mega Bank’s parent, Mega Financial Holding Co (兆豐金控), the nation’s fourth-largest financial services company by market capitalization. Members of the parliament’s finance and legislative affairs committees are demanding that the financial regulator begin a probe into Mega Bank’s lending policies, Hsu said.
TPG in February 2006 agreed to acquire NT$27 billion in Taishin Financial Holdings Co (台新金控) shares, convertible preferred shares and convertible bonds. TPG’s units pledged the shares as collateral for loans of NT$15.2 billion and NT$7 billion that year, Hsu said, reading from documents prepared for the legislator.
The lawmakers’ call for an investigation was reported earlier yesterday by the Chinese-language Financial Times newspaper.
Mega Bank in 2006 provided bridge loans and syndicated loans to TPG, Carlyle and Longreach Group, said Jack Lin, investor relations manager at Mega Financial, in a telephone interview yesterday.
Carlyle and Longreach borrowed a significantly smaller amount than the loans given to TPG, he said, declining to provide figures.
“The pricing justifies the risks and that’s why we granted these loans two years ago,” Lin said. “The loans to these private equity funds are still performing and we don’t think there is a risk of bad debts.”
Still, Mega Bank is in talks with TPG to raise collateral requirements for its loans, and the new terms haven’t been set, Lin said. It is common practice to offer loans using equities as collateral, he said.
Carlyle in July last year said it would pay NT$21.5 billion for about 36 percent of Ta Chong Bank Ltd (大眾銀行). In June of that year, Longreach Group, a buyout firm founded by Mark Chiba, a former UBS AG investment banker, agreed to buy a 51 percent stake in EnTie Commercial Bank (安泰銀行) for US$694 million.