China Development Financial Holding Corp’s (中華開發金控) double leverage ratio rose to 130 percent at the end of June, above the regulatory maximum of 125 percent, because of decreasing net worth, the company told an online investors’ conference.
The company said it would likely be a short-term issue.
China Development’s net worth declined 36.5 percent from a year earlier to NT$186.8 billion (US$6.18 billion) as of the end of June, mainly because its subsidiary China Life Insurance Co (中國人壽) posted an annual plunge in net worth of 48 percent to NT$89.1 billion, corporate data showed.
The double leverage ratio, which divides a parent company’s equity investment in its subsidiaries by the company’s total equity, or net worth, is used to gauge whether a company borrows too much to operate, Financial Supervisory Commission information showed.
“Decreasing net worth impacted our double leverage ratio, as the contraction in the financial markets has an impact on our [investment] portfolio. However, this is an industry-wide issue,” China Development general manager Stefano Paolo Bertamini said.
Once China Development adopts International Financial Reporting Standards 17 and new accounting rules take effect, the violent net worth fluctuations should be less likely, Bertamini said.
Asked whether China Development was planning a capital injection to help lower the double leverage ratio, Bertamini said: “We think it is a short-term issue and do not feel pressured to raise capital at this time.”
“Both the regulator and the industry recognized that this is an issue caused by rising interest rate trends and market volatility,” he added.
China Development would still raise capital, although not in the near term, as its board had approved an issuance of 2.5 billion new shares, Bertamini said, adding that the management team is looking for the right timing.
China Life president Stephanie Hwang (黃淑芬) said the life insurer’s net worth had rebounded to above NT$100 billion last month.
China Life reported net profit of NT$13.5 billion, down 18 percent from a year earlier, but the insurer is still the most profitable among all China Development subsidiaries, corporate data showed.
China Life reported a pre-hedge recurring yield of 3.47 percent at the end of June, up from 3.3 percent a year earlier, while its risk-based capital ratio rose from 325 percent to 331 percent, the data showed.
The life insurer had invested less in local stocks, but more in foreign bonds, as the weighting of the former fell from 9 percent at the end of last year to 7 percent at the end of June, while the weighting of foreign bonds grew from 59.9 percent to 65.6 percent, the data showed.
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