Taishin Financial Holding Co (台新金控) yesterday revealed for the first time the terms of a 2005 agreement with the government that allowed it to manage Chang Hwa Commercial Bank (彰化銀行).
Taishin Financial laid bare the agreement in reply to questions from institutional investors over its failed attempt in February to push for the merger of its main subsidiary, Taishin International Bank (台新銀行), with Chang Hwa Bank.
The Ministry of Finance, the second-largest shareholder at Chang Hwa Bank, with an 18 percent stake, in February spurned the idea on the grounds it would weaken its stake in the lender.
However, in 2005 the government agreed to allow the winning bidder of Chang Hwa’s 1.4 billion special shares — sold through a private placement auction — to run and manage the former state-run lender, Taishin Financial spokesman Welch Lin (林維俊) told an investors’ conference.
Taishin Financial won with a bid for NT$36.5 billion (US$1.23 billion), equivalent to NT$26.12 per share and more than three times the asking price of NT$11.4 billion, attracted by the opportunity to run and manage the former state-run lender, Lin said.
The government made the offer after Chang Hwa sought unsuccessfully to lower its bad loan levels through issuance of global depositary receipts, Lin said.
“Although Taishin Financial now owns a majority of the seats on Chang Hwa’s board, it cannot set directions for its development,” including the proposed merger with Taishin Bank, Lin said.
This and other restrictions contradict common understanding about control over a business organization, Lin said, adding that Taishin Financial cannot appoint its own choice of president at Chang Hwa.
In 2005, Taishin Financial was competing with Mega Financial Holding Co (兆豐金控), First Financial Holding Co (第一金控), Fubon Financial Holding Co (富邦金控) and Singapore’s Temasek Holdings for Chang Hwa.
Under the agreement, the government had pledged to progressively sell its shares in Chang Hwa — with consent from the legislature — and take due care to avoid creating another major shareholder during the process.
Toward that end, the government agreed not to sell more than 1 percent of Chang Hwa shares to the same party and that the winning bidder could retain control over Chang Hwa, as long as it holds onto its shares in the lender, Lin said.
The government also agreed to support proposals introduced by the winning bidder for Chang Hwa’s development if they meet the interests of shareholders and comply with statutory requirements, he said.
The agreement is legally binding, but Taishin Financial has no intention of taking drastic measures to make the government honor the terms, Lin said.
“We think it is better for both parties to sit down and talk before exploring other options,” he said.
During the conference, Taishin Financial released its first-quarter results, showing a net income of NT$4.2 billion, or earnings per share of NT$0.58, its highest since 2009, on the back of selling Visa and MasterCard shares.
Taishin Financial president Joseph Jao (饒世湛) said the company will book more gains from the sale of shares in the current quarter.