Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, yesterday placed China Development Financial Holdings Co (中華開發) on its “credit watch” with negative implications, saying the firm’s plan to buy KGI Securities Co (凱基證券) may weaken its capital strength.
The conglomerate on Thursday last week offered to buy KGI Securities at a 33 percent premium — with each KGI share to be exchanged for 1.2 China Development Financial shares plus NT$5 in cash.
The deal is sized at between NT$27.37 billion (US$92.57 million) and NT$54.63 billion since China Development Financial said it wanted to acquire between 50.1 percent and 100 percent of KGI shares to make it a fully owned subsidiary.
Besides worries about China Development Financial’s capital strength, Taiwan Ratings said its credit watch also reflected concerns that the conglomerate’s significantly enlarged securities business might not remain on par with its credit profile after the buyout.
The agency said it was also uncertain if the buyer could maintain its current overall credit profile after consolidating KGI Securities, which likely has a weaker credit profile.
China Development Financial said last week it planned to finance the buyout with proceeds from a NT$16 billion capital reduction plan at its banking unit, China Development Industrial Bank (中華開發工銀), as well as new share issue.