Taiwan Fertilizer's board fired amid scandal

The Ministry of Economic Affairs (MOEA) yesterday dismissed the chairman of Taiwan Fertilizer (台肥), Hsieh Sheng-fu (謝生富), as well as its board of directors and supervisors, after the company came under suspicion of having misappropriated NT$4 billion for insider trading, and of violating the Company Law.

According to the Commission of National Corporations (國營會), under the MOEA, Taiwan Fertilizer lent NT$4 billion to four affiliated companies, which then used the money to buy Taiwan Fertilizer's stock. The affiliates were set up by Taiwan Fertilizer just after it completed its privatization.

In its final share auction on Sept. 1, Taiwan Fertilizer became a privatized company by completing the sale of almost 132 million shares and leaving the MOEA with less than a 50 percent stake in the company.

The shares were sold for an average price of NT$52.06 each. Since then, the company's stock price has soared by 30 percent to NT$67.50 on Tuesday.

Following yesterday's revelations, the stock price dropped NT$4.50 to NT$63.

Before its privatization, Taiwan Fertilizer had NT$13 billion in cash. The Commission of National Corporations began investigating when, just one month after it completed its final share auction, that figure had dropped by NT$4 billion.

In response, Taiwan Fertilizer acknowledged lending money to the affiliates, but claimed no wrong-doing.

According to Taiwan Fertilizer's vice general manager, Tai Ching-song (?欽松), when the company set up the affiliates, and when the affiliates then purchased Taiwan Fertilizer's stock, it made a public announcement in both cases, in accordance with the requirements of the Taiwan Stock Exchange.

The four affiliates spent a total of NT$1.9 billion purchasing 30,000 shares at an average price of NT$62 per share, according to Tai.

Taiwan Fertilizer set up Taiyu Co, Liensheng Co (聯生), Taichuang Co (台2?/CHINESE>) and Taisheng Co (台3?/CHINESE>) on Sept. 10. Each company is capitalized at NT$200 million. Taiyu and Liensheng are Taiwan Fertilizer's sales agent, Taichuang is its import and export agent, and Taisheng is its consulting company for land development.

An executive at Taiwan Fertilizer, who asked to remain anonymous, also confirmed to the Taipei Times that his company had lent NT$1 billion to each of the four affiliates. But the whole process of lending money to those companies was legal and was approved by the board of directors, he said.

"We lent money to those four companies to run their business because they are new companies short of capital," said the executive.

However, the executive also admitted that the four companies did use part of the money to buy the company's stocks.

"It is natural that the four affiliates bought Taiwan Fertilizer's stock as they see our stocks having the potential to rise," he said.

The company's ex-chairman also said yesterday that the whole process had been legal.

"There is no cross-holding between Taiwan Fertilizer and those four companies," said company chairman Hsieh. "Those companies are separate companies," he said.

He also pointed out that the four companies are Taiwan Fertilizer's sales agents and dealers. They had had no capital, so Taiwan Fertilizer financed them. Officials from the Securities and Futures Commission (證券暨期3f?THORN>2z委-?|) refused to comment when asked if Taiwan Fertilizer was guilty of manipulating its stock price or violating the Company Law.