Ta Chong approves cash injection by Carlyle, Corsair

BANKING: The bank hopes to enhance its capital adequacy ratio by selling a stake of between 36 percent and 40 percent to the two foreign private equity investment firms

By Kevin Chen  /  STAFF REPORTER

Fri, Sep 14, 2007 - Page 12

Ta Chong Bank (大眾銀行), the nation's fifth-biggest cash card issuer by lending balance, yesterday said its board approved cash injection plans by Carlyle Group and private equity fund Corsair Capital LLC through a private placement.

The board agreed to issue convertible financial debentures, common shares and preferred shares worth NT$21.5 billion (US$650 million) to the new investors in a bid to improve its financial structure, Chuang Ya-ping (莊雅評), a senior manager at the bank, said by phone.

The board reviewed the fundraising plans at a special meeting on Wednesday and posted its conclusions in separate filings to the Taiwan Stock Exchange that night.

"If the regulatory review process and the subscription of new securities go as smoothly as expected, we expect to obtain NT$15.5 billion of new funds by Oct. 31," Chuang said yesterday.

The bank is scheduled to hold an extraordinary shareholder meeting on Oct. 31 to approve the private placement

"The remaining NT$6 billion is likely to come in sometime in November ... but definitely before the end of December," he said.

Ta Chong will use the new capital to enhance its capital adequacy ratio, the BIS ratio that measures a bank's financial strength, to 14 percent if provisions for allowances and reserves are excluded, Chuang said.

The bank reported a BIS ratio of 8.96 percent as at the end of April.

Ta Chong shares gained NT$0.2, or 1.9 percent, to close at NT$10.7 on the Taiwan Stock Exchange yesterday. The stock has shed 4.89 percent since the beginning of this year.

The bank last week reported NT$634.3 million in sales for last month and NT$6.57 billion in revenues in the first eight months of the year, a drop of 40.58 percent and 22.70 percent from the same period of last year respectively.

On July 10, Ta Chong announced that a consortium led by the Carlyle Group would invest NT$21.5 billion for a stake of almost 37 percent in the local lender, marking the US private equity fund's first entry into the nation's banking sector.

As individual investors are limited by law to a maximum share of 25 percent of the total amount of a bank's issued shares with voting rights, the Carlyle Group had been looking for other interested buyout firms to jointly invest in Ta Chong.

Chuang said Carlyle and Corsair would jointly own a stake of between 36 percent and 40 percent in the bank at NT$17 per share, a price that represents a premium of almost 59 percent on yesterday's closing price.

Corsair is expected to inject NT$7 billion, while Carlyle would invest NT$14.5 billion. The two new investors are expected to secure seven of the 13 board seats, including two independent directors, he said.

"This is not a deal of changed ownership ... like that of Cosmos Bank (萬泰銀行), but a deal of strategic partnership as the new investors will bring to us the needed know-how to boost our business," Chuang said.

On Monday, cash-strapped Cosmos said its board had given the go-ahead to ink agreements with units of US private equity firm SAC Private Capital Group LLC and General Electric Co (GE) to sell an 80 percent stake for NT$29.7 billion.

To comply with local regulations, Carlyle will establish a financial services company, Zhong Xi (眾希), in Taiwan. Zhong Xi will subscribe for 304.3 million common shares, 121.7 million preference shares and convertible financial debentures worth NT$3.9 billion issued by Ta Chong.

Corsair, meanwhile, will set up a local subsidiary called Xiong He (雄賀), through which it plans to subscribe for 284 million common shares, 113.6 million preference shares and NT$3.6 billion worth of convertible debentures.

The Carlyle Group, not Ta Chong, will submit the investment plans to the Financial Supervisory Commission, Chuang said.

"We cannot comment on whether the financial regulator will give the green light to the investment plans or when it will do so. But we see no particular reason why the financial regulator would oppose the investment plans," he said.