Sat, Sep 15, 2018 - Page 4 News List

Foundation expected to face legal issues over China Network Systems investment

By Shelley Shan  /  Staff reporter

The Y.L. Lin Hung Tai Education Foundation’s indirect investment in China Network Systems (CNS) might encounter legal issues after the Ministry of Education was reported to have said that investment in media outlets should not be considered a legitimate use of public trust funds.

An investment team led by KHL Capital chairman Gary Kuo (郭冠群) earlier this year entered a deal with the CNS in which the team acquired a majority stake in the multiple systems operator for about NT$51.5 billion (US$1.67 billion).

Two of the investment team’s largest shareholders are investment firms set up through the foundation, which is owned by the Hung Tai Group, a real-estate developer.

While the deal has not been approved by the National Communications Commission (NCC), it has been criticized as an example of how large corporations set up foundations to evade investment taxes.

The NCC consulted the ministry, which supervises how large corporations use the funds of non-profit foundations.

The Chinese-language Wealth Magazine said in an exclusive report last week that the Department of Lifelong Education on Aug. 27 told the NCC its conclusions.

The department said that public trust funds should be managed and appropriated according to the founding principles of a charity, not for investment, according to the report.

“The foundation’s expenditure is disproportionately small compared with the purchase price of CNS and the firms in its investment team are not publicly traded. It is uncertain whether profits from this investment would return to the foundation,” the report said, quoting the department. “As such, it is the department’s belief that the foundation’s investment in CNS does not fulfill its purpose.”

NCC spokesman Wong Po-tsung (翁柏宗) said that the commission would review statements from all parties before making a final decision.

He did not comment on the report’s veracity, saying he was not authorized to divulge information because the NCC is yet to deliberate on the case.

The commission on Sept. 25 is to hold an administrative hearing on the pending sale of CNS, with stakeholders invited to speak.

Industry observers said that the ministry’s input would be the key factor for the NCC, so the team might change its investment structure or find another buyer.

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