Hon Hai Precision Industry Co’s announcement on Friday last week that the company plans to reduce its paid-in capital by 20 percent and return NT$34.66 billion (US$1.16 billion) to its investors, or NT$2 per common share, has surprised many, as it would be the first time the world’s largest contract electronics manufacturer has carried out a capital reduction program since it started trading on the Taiwan Stock Exchange in June 1991.
The company said that the planned capital reduction is a separate consideration from its cash dividend — it is proposing to pay shareholders NT$2 per share this year — but part of the company’s efforts to reassess its profit-sharing program with shareholders.
In Taiwan, refunding cash through capital reduction is tax-free for shareholders, so it is both reasonable and beneficial. Overall, shareholders and investors might feel content with receiving NT$4 per share in cash this year from the company if the capital reduction and dividend payout proposals are given the go-ahead at the annual general meeting on June 22.
Prior to Hon Hai’s announcement, dozens of companies listed on the Taiwan Stock Exchange or the Taipei Exchange had presented plans to implement capital reduction this year, which they claim is a standard business practice and should not affect their operations, clients or employees. In theory, capital reduction means companies can optimize their capital structure with a better ratio of debt to cash reserves, as well as generate the most effective return on equity performance, thus improving their shareholder value.
For some companies that are performing poorly, capital reduction is a useful tool to recover part of their accumulated losses, while for other companies that have accumulated ballooning cash holdings — such as Hon Hai, which had net debt of NT$15.3 billion, but about NT$642.50 billion in cash at the end of last year — the reduction in capital is considered an effective way to increase their earnings per share and share price, as local investors are generally enthusiastic about companies that carry out such reductions.
Regardless of the motives behind capital reduction, most companies that carry out reduction programs seem to believe that they would be better off making their capital structure small and beautiful, rather than big and ugly. However, since there are other capital management initiatives that can also assist companies in streamlining their business processes to achieve greater improvements in capital structure and cash flow, one might ask whether the reduction means a muted outlook on future business performance when the rate of development in a prospective industry matures, or if the move has to do with changes in the nation’s economic structure.
Thus, the government should be wary of a succession of companies undertaking capital reduction programs, as the trend might indicate that businesses do not see the need to raise funds and expand their operations in the short term. The phenomenon might also indicate a future lack of investment opportunities or a deterioration of the investment environment in Taiwan. Either way, it has raised concerns about the weakened competitiveness of local industries and the slowdown in the nation’s economic growth from a long-term perspective.
Even more worrisome is that some capital reduction programs are used to allow businesses to withdraw their investment from Taiwan, as they need more capital for investment in markets elsewhere. On Saturday, Hon Hai confirmed that its Shenzhen-based subsidiary, Foxconn Industrial Internet Co, has received approval from China’s securities regulator to debut on the Shanghai Stock Exchange. Coupled with the fact that several other Taiwanese companies are looking to float shares of their subsidiaries in Shanghai or Hong Kong instead of Taiwan, the government should keep a wary eye on companies’ capital reduction practices.
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
If you had a vision of the future where China did not dominate the global car industry, you can kiss those dreams goodbye. That is because US President Donald Trump’s promised 25 percent tariff on auto imports takes an ax to the only bits of the emerging electric vehicle (EV) supply chain that are not already dominated by Beijing. The biggest losers when the levies take effect this week would be Japan and South Korea. They account for one-third of the cars imported into the US, and as much as two-thirds of those imported from outside North America. (Mexico and Canada, while
The military is conducting its annual Han Kuang exercises in phases. The minister of national defense recently said that this year’s scenarios would simulate defending the nation against possible actions the Chinese People’s Liberation Army (PLA) might take in an invasion of Taiwan, making the threat of a speculated Chinese invasion in 2027 a heated agenda item again. That year, also referred to as the “Davidson window,” is named after then-US Indo-Pacific Command Admiral Philip Davidson, who in 2021 warned that Chinese President Xi Jinping (習近平) had instructed the PLA to be ready to invade Taiwan by 2027. Xi in 2017
RSS