The board of Cosmos Bank (萬泰銀行) has approved plans to slash the lender’s capital and then raise fresh funds via private placements to replenish capital eroded by losses.
The board of directors held a meeting late on Wednesday, in which they agreed to reduce Cosmos’ capital by 46.54 percent, or NT$13.28 billion (US$451.9 million), a statement from the bank said.
After the share reduction plan, the bank’s total paid-in capital will be NT$15.26 billion, it said.
The capital reduction move comes before the bank’s scheduled conversion of its subordinated unsecured mandatory convertible bonds (MCB) due on Dec. 27, which is expected to increase Cosmos’ share capital to NT$28 billion and dilute the company’s earnings per share.
On Wednesday the board also approved a rights issuance of 100 million shares through private placements. The bank plans to use the proceeds to strengthen its working capital, maintain higher earnings per share and boost its capital adequacy ratio, the statement said.
The bank plans to issue NT$1 billion in new shares, with potential buyers including SAC PEI Taiwan Holdings BV and China Development Industrial Bank (中華開發工銀).
Cosmos did not specify the date of the planned rights issuance, but the Chinese-language United Evening News reported yesterday that the firm plans to issue new shares in March next year at the earliest, citing company sources.
Cosmos is the only Taiwanese lender with a non-performing loan (NPL) ratio above the 2 percent threshold as of August (6.82 percent compared with the average 0.54 percent for the sector) while its coverage ratio — loans covered by banks’ provisions and a gauge indicating the sufficiency of bad loan reserves — was 42.44, compared with the 201.8 percent average for the sector, the Financial Supervisory Commission (FSC) said in a report released yesterday.
However, the recovery of bad debt from the sale of a Prince Motors Corp's (太子汽車) office building in downtown Taipei on Sept. 27 is likely to provide the bank with an substantial one-off income and help reduce its NPL ratio to as low as 0.87 percent as of the end of last month, according to analysts.
The bank’s business profile has been largely concentrated in the cash-card business after it launched the nation’s first cash-advance cards in 1999. However, Cosmos saw its capitalization weaken in 2006 following a surge in credit costs. The sector’s defaulting crisis in 2005-2006 led the bank to post a net loss of NT$11.3 billion in 2006.
Since then, Cosmos has gradually reduced exposure to unsecured consumer lending and made efforts to expand into mortgages, corporate loans and fee-based wealth management business. Cash cards represented about 25 percent of its total loan portfolio as of the end of June, compared with more than 40 percent in 2006.
In the first eight months of this year, Cosmos reported a pre-tax profit of NT$2.05 billion, with a net value of NT$14.17 billion, FSC data showed.
On Sept. 24, Taiwan Ratings Corp (中華信評) said it was revising the outlook on Cosmos’ long-term issuer credit rating to positive from stable on Sept. 24, while affirming its “twBBB-” long-term and “twA-3” short-term ratings on the bank.
The latest capital reduction plan, its fourth since 2007, and new share issues will be submitted to its shareholders for approval at an extraordinary shareholders meeting scheduled to be held on Nov. 23, the company said.
Cosmos shares rose 1.14 percent to NT$7.97 yesterday, outperforming the TAIEX, which fell 0.03 percent. The stock has risen 27.52 percent so far this year, compared with the 8.63 percent increase on the TAIEX.