Taiwan Fertilizer stock plunges 7%

Taiwan Fertilizer's (台肥) stock price slumped by the 7 percent trading limit for a second straight day, closing at NT$59 yesterday, following allegations that the firm misused NT$4 billion in company funds.

The scandal prompted the Ministry of Economic Affairs to dismiss the chairman, four other government-appointed board members and two supervisors of the company.

According to Taiwan Fertilizer, the scandal was a result of insider trading and factional in-fighting. An executive at the company who asked to remain anonymous said some investors had been short-selling the company's stock. What this means is that they had sold borrowed shares in anticipation of making a profit by purchasing the stock later at a lower price. So they manufactured the scandal to bring down the company's share price. In fact, according to stock exchange records, there was a large short selling position of 2,084,000 shares on Oct. 12 -- twice the number of just the day before.

According to the executive, the company's chairmanship is a highly prized position. "Where can you find a company with the kind of assets that Taiwan Fertilizer has?" he asked.

Taiwan Fertilizer had been a very conservative company, the executive said, but Hsieh Sheng-fu (謝生富), had been extremely aggressive in pursuing high revenue growth targets. Under his leadership, the company had been diversifying into more profitable areas including high-tech industries and land development.

"He saw that Taiwan Fertilizer was in a good position and its stock price had room to rise, so he had the affiliate companies buy stock in the parent company. He was making a profit for Taiwan Fertilizer, not misusing the company's money," the executive said.

Teng Wan-rong (鄧萬榮), the only board member that was not appointed by the economics ministry, also showed his support for the former chairman in criticizing the ministry. He said that the ministry had made the decision too quickly and, as a result, shareholders would end up being the victims.

However, the executive admitted that the ministry's right to remove the board was beyond question, as it held a 40 percent stake in the company, which gives it the legal right to appoint five board members and three supervisors.

Cheng Wen-ching (鄭溫2M), vice chairman of the economics ministry's Commission of National Corporations, disputes the claim that company in-fighting had led to the current controversy. By setting up the four affiliate companies without first informing the commission, Hsieh had been neglecting his duty. This, Cheng said, was why Hsieh had been dismissed. Wu Hui-lin (吳惠林), a research fellow at the Chunghua Institute for Economic Research (??華經濟研究院), said he believed that the ministry had dismissed Hsieh out of fear that he may have carried on with what they considered to be mismanagement of the company's funds.

"But the real problem here is the government's privatization process," said Wu. "It's a bad idea to privatize state-run firms so quickly. They are so asset-laden that it's tempting to break the law."

The government should instead completely deregulate and liberalize the market, and let state-run firms compete with private firms on an even playing field, Wu said. "Then, and only then, will state-run companies try to lift their competitiveness. If they cannot, they will just close down."