The Y.L. Lin Hung Tai Education Foundation on Tuesday denied that its charitable trust fund was to be used to fund the acquisition of China Network Systems (CNS), adding that the deal fulfills the requirements of the Trust Law (信託法).
CNS’ largest shareholder, MBK Partners, in May agreed to sell CNS — a multiple-system operator — to an investment team led by KHL Capital chairman Gary Kuo (郭冠群) for NT$51.5 billion (US$166.96 billion), according to the National Communications Commission (NCC).
The sale is pending approval by the Investment Commission, as it would involve MBK Partners — a foreign investor — pulling out of Taiwan.
The NCC and the Fair Trade Commission need to be consulted before the Investment Commission can act.
The NCC has said that it is to scrutinize the sources of funding for the transaction, as well as its likely effects on the cable-television industry.
Specifically, stakeholders must prove that they have adhered to regulations banning investment by political parties, the government and the military, and have not used charitable funds.
There are two groups of investors: Kuo and his co-investors, and two investment firms whose shares are all owned by the Y. L. Lin Hung Tai Education Foundation, part of the Hung Tai Group, information from the NCC showed.
The funding from the two investment firms would allow them to own 49.7 percent of CNS shares, if the deal proceeded, the information showed.
Attorney Hsieh I-che (謝易哲), who represents Kuo and his co-investors, said at a public hearing organized by the NCC that although the foundation owns 100 percent of the shares of the two investment firms, those shares are actually part of its charitable trust fund.
The two firms were established long before the foundation was formed, Hsieh said, adding that they would use their operating capital, not foundation funds, to buy CNS.
Jinwen University of Science and Technology professor Chuang Chuen-fa (莊春發) said that MBK Partners has tried to sell CNS a few times prior to this deal, with the price sliding from more than NT$70 billion.
The previous deals fell apart because of issues such as a concentration of ownership and allegations that the government or Chinese groups were to be investors, Chuang said.
Although the issue of a charitable trust fund investing in a cable-system operator has arisen this time, Chuang said he did not see any other controversial issues with the deal, adding that it would help return cable systems to Taiwanese investors.
The NCC should quickly approve the deal to avoid giving the impression that foreign investors could easily enter the market, but then have difficulties pulling out, he said.
New Power Party Executive Chairman Huang Kuo-chang (黃國昌) said that he was more concerned over whether the day-to-day operations at CNS would be managed by cable industry professionals and whether any profit from the investment would go to charity.
“The problem with the implementation of the Trust Act is that the trustees are never the people with the final say on how funds should be used,” Huang said.
Those in the investment teams who made the decision to invest in CNS should be identified and their relationships with the foundation scrutinized, Huang said.
NCC Commissioner Hung Chen-ling (洪貞玲) said that the NCC has consulted the Ministry of Education on the proper use of charitable trust funds and would take that advice into consideration as the NCC deliberates.
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