Sat, Sep 06, 2014 page14

• Foreign acquisition rules relaxed

  • By Kevin Chen / Staff reporter
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  CTBC Financial Holding Co (中信金控) and Fubon Financial Holding Co (富邦金控) are likely to benefit most from authorities’ planned deregulations on overseas acquisition, a market watcher said this week.

  The two financial conglomerates could outpace their local peers as the Financial Supervisory Commission spearheads its “regional champions” plan for local players, considering their relatively larger earnings contributions from overseas subsidiaries, said Nora Hou (侯乃鳳), a Taipei-based analyst at CIMB Securities Ltd.

  The brokerage also said the commission is moving in the right direction and forecast earnings contribution from overseas subsidiaries might reach 40 to 45 percent of Taiwanese firms' net profit in three to five years, compared with about 33 percent currently, along with higher contribution from subsidiary operations going forward.

  Since late last year, the commission has encouraged local financial institutions to learn from Singapore’s DBS Bank and develop into regional leaders through mergers and acquisitions (M&As) within three to five years.

  In the meantime, the commission is mulling adjusting requirements on an investment ceiling to further facilitate Taiwanese banks’ and insurers’ overseas expansion.

  This week, local media said the commission was planning to further deregulate local banks’ overseas mergers and acquisitions, allowing their investments in foreign counterparts of stakes of 20 percent or more to be exempted from their overseas investment ceiling.

  That represents a significantly lower threshold, as current regulations require domestic banks to own at least a 50 percent stake in a foreign peer to enjoy such exemption.

  Based on the Banking Act (銀行法), a bank’s total investment must not exceed 40 percent of its paid-up capital. If the bank holds a more than 50 percent stake in an overseas investment target, its investment in the foreign entity can be exempted from the aforementioned investment ceiling.

  Meanwhile, the commission said it was proposing to exclude local insurance companies’ overseas M&As from the 45 percent cap of their total investment and the 40 percent ceiling of net worth, while considering removing the overseas investment cap from the present 40 percent of net worth for securities brokerages having a capital adequacy ratio of 200 percent or higher.

  “These policy moves are part of the government’s efforts to turn domestic financial players into regional leaders,” Hou said in a client note on Thursday. “We expect the deregulations to enlarge financial players’ investment and M&A capacity, and ultimately accelerate their overseas expansion.”

  The government’s planned deregulations come as Cathay Financial Holding Co (國泰金控) was reportedly in talks to buy a minority stake in Philippine lender Rizal Commercial Banking Corp last month and CTBC Life Insurance Co (中信人壽), a subsidiary of CTBC Financial, plans to acquire a 20 percent stake in Chinese peer ABC Life Insurance (農銀人壽).

  Hou said the government’s policy moves, if carried through, should also prompt financial institutions to increasingly move overseas via stake acquisitions and establish subsidiaries abroad to gain immediate local presence.

  However, the new policies should suit Taiwanese firms better in Southeast Asia than China, where a foreign bank can only hold up to a 20 percent stake in a local bank, she added.
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