The Financial Supervisory Commission (FSC) said on Friday it would strengthen regulations on banks and financial holding companies’ fund-raising through private placements to better safeguard the public interest.
The FSC said in a statement that its banking bureau invited several academics, banking representatives and related industry agencies to a meeting on Friday to discuss the appropriateness of financial firms raising capital via private placements or private equity funds.
Participants reached a two-point consensus, the statement said.
“First, it is better for banks and financial holding companies to raise funds via private placements only when they are experiencing financial and operational difficulties and are in urgent need of capital injection,” the statement said.
“Second, financially strong banks and financial holding companies should not sell stakes to private equity funds because of the leverage risk and financial instability involved,” it said.
The commission said it suggested financial institutions raise capital via public offerings instead of private placements because private placements have uncertainties related to the lack of information transparency and the qualifications of major shareholders.
The FSC’s statement came after Chinatrust Financial Holding Co (中信金控) president Daniel Wu (吳一揆) on Thursday said that the firm’s proposed fund-raising plan via either public offerings or private placement was concerned more with strategic investment than capital need.
Chinatrust plans to raise up to NT$41.13 billion (US$1.28 billion) by issuing 2.5 billion new shares, which its shareholders approved on June 30.
Wu said there was no urgent need to raise funds since the firm’s acquisition of Nan Shan Insurance Co (南山人壽) remained uncertain and the company’s plan to set up a subsidiary in China had fallen through. He said the firm must also consider market conditions and other details related to the timing of the fund-raising.
Although the company has not decided which method to adopt, Wu said that there was no lock-up period for investors for the public offerings, which was not necessarily good for the firm.
While a private placement poses concerns for investors because of a massive share dilution, banking analysts such as Bradford Ti (鄭溫煌) at Citigroup Global Markets have said this method of selling securities to select investors offers companies access to more capital with a relatively lower cost than public offerings, also providing them with the favored clients of strategic partners.
Apart from Chinatrust, other financial firms that have had their private placement plans approved by shareholders this year include Ta Chong Bank Ltd (大眾銀行), Cosmos Bank Taiwan (萬泰銀行), Fubon Financial Holding Co (富邦金控) and China Development Financial Holding Co (中華開發金控).
Ta Chong plans to either sell as many as 3.6 billion common shares worth NT$36 billion in a private placement or issue global depositary receipts, the lender said in a stock exchange filing on June 29.
Fubon Financial plans to raise up to NT$35 billion via domestic convertible bonds, overseas convertible bonds, global depositary receipts, a private placement or a combination of these methods, the firm said in an exchange filing on June 28.
Cosmos will raise up to NT$10 billion through a private placement of common shares to strengthen its financial structure, it said in a filing on June 18, while China Development Financial plans to raise up to NT$18 billion to strengthen its working capital, either by issuing 600 million common shares via a private placement or by issuing global depositary receipts, it said in a separate filing on the same day.
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