Cathay Financial Holding Co (國泰金控) on Thursday last week announced plans to raise NT$20 billion (US637.63 million) in fresh capital by issuing new common shares to bolster the financial strength of its banking and insurance subsidiaries.
The proposed fundraising requires approval from the Financial Supervisory Commission (FSC) and the company’s shareholders.
The plan comes as the nation’s largest financial conglomerate by assets is preparing to strengthen its financial structure amid increased market volatility due to the US-China trade dispute and implementation of new International Financial Reporting Standards (IFRS), Cathay Financial president Lee Chang-ken (李長庚) said in late May.
The move would be the second rights issue for Cathay Financial in its 18-year history and the first such fundraising activity since 2013, when it raised NT$12.71 billion by issuing 353 million new common shares at NT$36 each.
The fresh capital would help the company better prepare for the IFRS 17 implementation in 2024-2025 and new capital accrual regulations set by the FSC on domestic bank’s overseas investments, analysts said.
However, concerns about the company’s outstanding shares being diluted because of the fundraising could prompt a sell-off in the near term, they said.
Shares of Cathay Financial rose 0.51 percent to NT$39.55 on the Taiwan Stock Exchange on Friday. They have declined 15.85 percent so far this year.
Cathay Financial is the nation’s biggest financial holding company, with major subsidiaries including Cathay Life Insurance Co (國泰人壽), Cathay United Bank (國泰世華銀行), Cathay Century Insurance Co (國泰產險) and Cathay Securities Co (國泰證券).
In a stock exchange filing issued on Thursday, Cathay Financial said that its board of directors had approved a plan to issue up to 1 billion common shares to raise funds.
Cathay Financial did not set an issue price for the new shares, saying only the price would be tentatively set at between NT$27 and NT$41 per share, according to the filing.
From the funds raised, the company plans to inject NT$10 billion each to Cathay Life and Cathay United to improve their financial structure and capital adequacy, the filing showed.
Cathay Financial spokesman Daniel Teng (鄧崇儀) said that the rights issue is mainly to cope with business development along with better capital strength, the Chinese-language Liberty Times (the Taipei Times’ sister newspaper) reported on Friday.
The move also responds to the regulator’s supervisory policy after it in June categorized Cathay United Bank as one of five “domestic systemically important banks,” which are subject to higher capital standards, the Liberty Times cited Teng as saying.
Cathay Life executive vice president Lin Chao-ting (林昭廷) said that the insurer’s risk-based capital ratio is higher than its local peers at more than 300 percent at the end of June, but the company needs to take precautions to optimize its risk profile in case of market volatility, the Liberty Times reported.
Cathay Financial did not elaborate on the possibility of share dilution.
Taishin Securities Investment Advisory Co (台新投顧) estimated a share dilution of 4.7 percent if the company were to issue 625 million new shares at NT$32 per share.
Its earnings per share are forecast to be diluted to NT$4.16, from NT$4.37, with book value per share of NT$46.75, Taishin said in a note to clients on Friday.
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