Sat, Aug 13, 2011 - Page 12 News List

Hon Hai issues a denial on reports of bank borrowing

By Lisa Wang  /  Staff Reporter

Hon Hai Precision Industry Co Ltd (鴻海精密) yesterday denied reports that appeared in the local media, citing Fitch Ratings data, that the company has borrowed about NT$300 billion (US$10.34 billion) from local banks, putting its creditors on the brink of the 15 percent cap on lending to a single corporation.

“The company recently borrowed about NT$60 billion from banks, which accounted for less than 5 percent of any of our creditor’s net worth,” Hon Hai spokesman Edmund Ding (丁祁安) said in a filing to the Taiwan Stock Exchange yesterday.

“The reports are incorrect,” Ding said in the statement.

Hon Hai is the world’s largest maker of electronic components. It is also a major assembler of Sony TVs, HP printers and Apple iPhones and iPads.

Like many other Taiwanese firms, Hon Hai has used bank loans and proceeds from bond issues to buy equipment and expand capacity at a time when the nation’s borrowing costs are still relatively low. However, regulations do allow Taiwanese banks to lend up to 15 percent of their net worth to a single borrower.

The Taipei Times yesterday sought clarification on the matter from Fitch Ratings, which said its figures were based on Hon Hai’s own financial statement.

As of March 31, Hon Hai has borrowed NT$252.51 billion in short-term loans and NT$45 billion in long-term loans, the balance sheet submitted to the Taiwan Stock Exchange indicated.

As of the first quarter of this year, the company had NT$280.53 billion in cash.

“It is normal for a huge company like Hon Hai to borrow NT$300 billion,” Fitch Ratings analyst Jonathan Lee (李信佳) said by telephone.

“The core issue is that local banks could face unacceptably high risks if they do not go global as their borrowers have done,” Lee said. “They should not put all of their eggs in one basket.”

Generally speaking, banks are exposed to excessive risk if they lend 10 percent of their net worth to a single corporation, Lee said.

Hon Hai’s borrowing made up 14.3 percent, according to Fitch Ratings.

As domestic liquidity is ample, local banks charge a low interest rate on corporate loans, which is insufficient to cover the risk, Lee said.

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