Cathay Financial Holding Co (國泰金控), the nation’s largest financial services provider by assets, yesterday said it plans to increase its capital to accelerate its cross-strait expansion. The firm also urged the government to ease restrictions on purchases of undeveloped commercial land by life insurers.
“I cannot comment on the use of the new capital until things are finalized,” Cathay Financial president Lee Chang-ken (李長庚) told an investors’ conference.
It is the first time in at least two decades that Cathay Financial will embark on a plan to increase its capital — which still needs the approval of shareholders — and it is expected to raise NT$40 billion (US$1.35 billion) via a new share issue and NT$12 billion of European convertible bonds.
The plan has fueled speculation that the conglomerate is on the verge of closing an acquisition or merger with a Chinese peer.
“We are exploring all the legal options to accelerate cross-strait expansion,” Lee said. “Banks are the most likely investment target for both sides, compared with life insurance or financial holding companies.”
Under existing rules, Cathay Financial may acquire up to a 20 percent stake in a Chinese bank, while Chinese banks can own a 5 percent stake in a Taiwanese peer or a combined 10 percent stake in association with other Chinese investors.
Cathay Financial chairman Tsai Hong-tu (蔡宏圖) told local media last week that his company was looking to set up a cross-shareholding arrangement with a major Chinese financial institution.
Potential targets include Bank of China (中國銀行), Industrial and Commercial Bank of China (中國工商銀行), Agriculture Bank of China (中國農業銀行) and China Construction Bank (中國建設銀行), as well as other smaller Chinese financial institutions.
UBS financial analyst Pandora Lee (李懿璇) said that not all cross-strait partnerships would be beneficial to Cathay Financial in terms of earnings growth or gains in market share.
“Something is definitely going on, judging by the plan to increase capital,” Pandora Lee said. “However, I doubt Cathay Financial is capable of acquiring a significant stake in a major Chinese bank, given their size.”
Domestically, Cathay Financial reiterated its intention to increase real-estate investments and it considers constraints imposed on purchases of undeveloped plots of land by life insurance companies unnecessary, Lee Chang-ken said.
The company urged the Financial Supervisory Commission to ease the restrictions, saying such tightening slows business activity, but does little to advance adjustments of prices in the housing market.
“The restriction should apply only to residential land transactions to curb rising house prices,” he said. “Commercial land deals help bring prosperity for society and there should be more flexibility.”
The commission requires purchases of plots of land by life insurance companies to be coupled with applications for construction licenses to avoid land hoarding.
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