Fubon Financial Holding Co (富邦金控) yesterday said that it plans to issue preferred shares to raise operating funds and to bolster its capital structure.
The company plans to issue 600 million preferred shares at NT$60 each, aiming to raise NT$36 billion (US$1.11 billion).
The shares offer annual dividend yield of 4.1 percent in the first seven years beginning on April 22 and ending on April 21, 2023, which is 3.42 times higher than the 1.2 percent average yield for three-year fixed deposits offered by domestic banks, the company said.
However, the company might redeem the preferred shares at the end of the seventh year and adjust the yield accordingly at the end of the period.
Fubon Financial president Vivien Hsu (許婉美) said earlier that issuing preferred shares represents a better option than issuing common shares, as the company’s shares had tanked amid a spike in global market volatility last year.
Hsu added that issuing preferred shares does not dilute earnings per share performance and that the instruments are superior to corporate debt, as they are recognized as equity, which prevents worsening of debt-to-equity ratio.
In addition, preferred shares count toward the company’s capital stock, which helps in bolstering Fubon Financial’s financial condition, she said.
Meanwhile, analysts said that part of the funds would likely be used to purchase a 20 percent stake in Fubon Bank (China) and that the capital influx could reduce Fubon Financial’s leverage ratio.
Industry watchers have said the lower the leverage reading, the better a company’s capital strength, as it indicates the firm’s lower risk in financing assets with debt and other liabilities.
Yuanta Securities Investment Consulting Co (元大投顧) said Fubon Financial’s double leverage reading would improve from 120.55 percent to 110 percent by the end of this year, while Credit Suisse AG is anticipating the figure to reach 115 percent, in separate client notes published last week.
The company said that 10 percent of the preferred shares would be made available to be purchased by the public via a offering conducted by state-run Bank of Taiwan Securities (台銀證券), the company said, adding that each investor can purchase no more than 2 shares.
Fubon Financial shares yesterday gained 0.64 percent to NT$39.3, translating to a 50 percent premium to the current stock price for the preferred shares.
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