Chinatrust clams up as suitors eye stake

When Chinatrust, one of Taiwan’s leading financial services groups, reported interim results on Wednesday, analysts focused on one question: whether it intends to sell a large stake to a foreign investor.

Investors, foreign banks and private equity funds have been in a state of constant excitement since Jeffrey Koo Sr, Chinatrust’s major shareholder and chairman, indicated a year ago that he might sell part or even most of his controlling stake in the group.

Voluntarily ceding control would be an unprecedented move by one of the families that dominate Taiwan’s financial and other industries, and bankers see Chinatrust as potentially the strongest bank in the Chinese-speaking world.

But Mr Koo’s signal came as his succession plans for his business empire were thrown into disarray.

Taiwan authorities put his eldest son and heir-apparent on their list of wanted criminals after Mr Koo Jr failed to respond to subpoenas in a probe of alleged violations of banking and securities laws.

In April this year, Chinatrust’s board formed a committee to look into the possibility of introducing strategic investors.

Management has met with dozens of potential investors, among them buy-out funds Carlyle, Blackstone and KKR, investment banks such as Goldman Sachs and Morgan Stanley, and several global and regional commercial banks.

But as Chinatrust has failed to respond to any of the proposals brought forward by potential suitors, bankers are increasingly disillusioned.

“We proposed a deal tailor-made to what they have said are their needs – additional capital for consolidation in the Taiwanese banking market and help in getting access to the Chinese market,” says a banker who approached Chinatrust on behalf of a private equity fund last month.

“But they say that China is legally not do-able unless the Taiwan government eases restrictions, and that margins in the domestic banking market are too unrewarding.

“This makes us believe that the whole thing is no more than a show.”

This view is widely shared among those who have approached Chinatrust over the past year.

The Koo family incurred the government’s wrath by attempting a hostile take-over of Mega Financial, a leading government-controlled group – the transaction that triggered the investigation against the younger Koo. Most bankers believe that, as a result of the situation, the group feels compelled to demonstrate that the Koo family is willing to cede control.

Jason Wang, chief strategy officer at Chinatrust, confirms that meetings with potential investors so far have been less than serious. He says this is because management still has received no commitment from Mr Koo Sr to cede control to a new investor.

Mr Wang claims that management is seeking a decision by the end of the third quarter because any further delay could inflict damage on investor confidence in Chinatrust.

But outsiders doubt that. “They are by no means in dire need for new funds. We believe the show will drag on until the presidential election next March, because a change in government could mean that Mr Koo gets his heir-apparent back,” says an investment banker.

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