Mon, Feb 20, 2017 - Page 16 News List

Terry Gou pledges shares as loan collateral

Staff writer, with CNA

Hon Hai Precision Industry Co (鴻海精密) chairman Terry Gou (郭台銘) has pledged a large chunk of Hon Hai shares to banks in exchange for loans, according to data released by the Taiwan Stock Exchange (TWSE) on Saturday.

The loans are likely to be used to carry out Hon Hai’s plans to build flat-panel plants in China and the US, analysts said.

Gou provided 430 million Hon Hai shares as collateral to the Taipei branch of Switzerland-based UBS Group AG, Cathay United Bank (國泰世華銀行) and Taishin International Bank (台新銀行) on Jan. 3, TWSE data show.

Gou reported the transaction to the TWSE on Jan. 6.

Based on Hon Hai’s Jan. 3 closing price of NT$84.3 per share, the 430 million shares were valued at about NT$36.25 billion (US$1.18 billion).

Gou has secured about NT$21.75 billion from the three banks, as borrowers can get loans worth 50 to 70 percent of the collateral they offer, analysts said.

Gou owns about 2.12 billion Hon Hai shares.

Gou pledged about 1.1 billion shares as collateral, accounting for about 52 percent of his total holdings, TWSE data show.

At the end of December last year, Gou signed an agreement with Guangzhou authorities to invest 61 billion yuan (US$8.8 billion) to build an advanced 8.5G flat-panel complex focusing on organic light-emitting diode (OLED) screen production.

The planned plant in Guangdong Province’s Guangzhou is to be owned by Osaka-based Sakai Display Products Corp (SDP), a joint venture between Gou and Japan’s Sharp Corp, in which Hon Hai holds a 66 percent stake.

At present, Gou owns a 53.05 percent stake in SDP after he increased his stake last year.

According to Chinese media reports, the Guangzhou plant is scheduled to break ground on Wednesday next week, after SDP has acquired a large plot of land worth 989 million yuan for the construction.

Hon Hai and Sharp are working on a plan to set up a joint venture in Zhengzhou, the capital of China’s Henan Province, to manufacture OLED screens for smartphones, Japan’s Mainichi Shimbun reported on Friday.

The report said that the Zhengzhou plant aims to compete with Chinese rivals for orders from Apple Inc to supply displays for the next-generation iPhones expected to hit the market later in the year.

The Nikkei Asian Review said that the Zhengzhou plant could cost Hon Hai and Sharp about ¥100 billion (US$886.4 million) to build.

Gou is also planning to build a flat-panel plant in the US to maximize its geographic proximity to its clients. Apple is one of Hon Hai’s major clients, accounting for about 40 percent of the Taiwanese firm’s revenue.

Gou has estimated that a flat-panel factory in the US would cost Hon Hai more than US$7 billion and would employ 30,000 to 50,000 people.

In related news, Sharp on Friday raised its earnings forecast for the second time this month, as a result of the company’s efforts at cost cutting.

A Sharp statement said that its operating profit for the fiscal year ending next month would hit ¥47.4 billion, an upgrade from a Feb. 3 estimate of ¥37.3 billion.

Sharp said that the improved outlook reflected lower operating costs after the company revised its purchasing contracts in a favorable way.

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