Shin Kong to buy back 1.99 percent of issued shares

By Kevin Chen  /  STAFF REPORTER

Sun, Nov 11, 2007 - Page 11

While the US credit crisis has dragged down financial markets worldwide, Shin Kong Financial Holding Co (新光金控) believes that the fall offers an opportunity for the company to buy back its own shares at a cheaper price.

The nation's eighth-largest financial service provider by assets announced in a filing on Friday night that it would buy back 100 million common shares at a price of between NT$20 and NT$35, which is estimated to cost the company NT$2.53 billion (US$78.2 million) based on Friday's closing price of NT$25.25.

Shin Kong Financial said in the filing that its board approved the share purchase proposal, and the company would start buying back its shares on Monday for a period of two months.

The total planned purchase would account for 1.99 percent of its total shares issued and would not affect the company's capitalization, it said.

Shares brought back will be allocated for employee bonuses, it said.

The company announced the buyback plan after seeing its shares fall 9.83 percent since Wednesday, when it said it would have to take an impairment loss of NT$5 billion for the third quarter on investments in Cosmos Bank (萬泰銀行) and in collateralized bond obligations (CBOs) linked to US subprime mortgage products.

Following the writedowns, Shin Kong Financial reported a net loss of NT$1.86 billion in the third quarter.

For the first three quarters, the company's net income declined 15 percent year-on-year to NT$7.38 billion.

Shin Kong Financial joins an expanding list of financial service groups that have disclosed increased asset impairments from their exposure to CBO and collateralized debt obligation (CDO) investments due to the US subprime lending crisis.

The company said in a conference call on Wednesday that it had invested NT$10.6 billion in CDOs containing asset-backed securities (ABS) as of the end of the third quarter.

About NT$3.92 billion, or 37 percent, of such ABS CDOs were linked to US subprime mortgage products. The company claimed, however, that 60 percent of the securities were rated either "AA" or "AAA," and that interest/principal payments were normal.

Citigroup's equity research team, which has a 12-month target price of NT$45 for Shin Kong, said in a note released on Friday that the company offered attractive valuations, but downside risks remained given that "concerns on CDOs and CBOs will remain an overhang."

For the first 10 months of the year, Shin Kong Financial posted NT$8.213 billion in profit, or an earnings per share of NT$1.67, the company said in another filing on Friday.

Its insurance unit, Shin Kong Life Insurance Co (新光人壽), remained the group's major earnings generator, with profits in the January to October period reaching NT$8.08 billion, or NT$2.4 in earnings per share.

Shin Kong Bank (新光銀行), meanwhile, posted a net loss of NT$1.295 billion, or a loss per share of NT$0.66, the filing showed.

Shares of Shin Kong Financial have declined 28.2 percent year to date, underperforming the benchmark TAIEX which has risen 13.3 percent.