Investors in Chang Hwa Bank have called on the Taiwanese government to protect the interests of minority shareholders and vote against a proposal Friday to cut the size of the lender’s board.
The case is seen as a benchmark for the standards the new administration in Taipei intends to use in reforming the island’s overcrowded and underperforming banking sector.
Taishin Financial Holding, a family-controlled financial services group, holds a 22.5 per cent controlling stake in Chang Hwa, which it acquired from the government in 2005. Taishin has since attempted to merge with Chang Hwa, though its offers have been rebuffed.
Minority shareholders voting on Friday claim that a proposal from a group of larger investors to reduce Chang Hwa’s board from 15 to nine members is likely to strengthen Taishin’s grip on the bank. The plan would also allow the group of large investors to push through the proposed merger between Chang Hwa and Taishin International Bank, Taishin’s flagship operation.
The large investors behind the proposal argue that a smaller board would be more efficient.
“The shareholder proposal appears to put Chang Hwa minority shareholders at further risk by potentially reducing the number of independent directors on the board,” said David Frank, senior Asia-Pacific portfolio manager at the Universities Superannuation Scheme, one of the UK’s largest pension funds and Chang Hwa’s third largest shareholder after Taishin and the Taiwanese government.
One independent director on Chang Hwa’s board has already questioned Taishin’s past merger proposals, which many investors argue undervalue the bank.
As a result, Taishin retracted a merger proposal earlier this year under which it offered Chang Hwa shareholders 1.3 Taishin Bank shares in return for one Chang Hwa share.
Another key concern for minority investors relates to the valuation of Chang Hwa’s land assets. The bank undertook a review of these last year but failed to publish details of the results.
Analysts and minority shareholders say Taishin could get a merger with Chang Hwa through as a share swap based on its past valuation, and realise gains on the land assets later.
“Taishin is forcing Chang Hwa to sit on its assets,” said a minority shareholder who declined to be named.
“The level of . . . asset disposals we have seen so far this year from Chang Hwa has been disappointing,” said Mr Frank.
Investors say the government could change this by voting against the proposal and calling on other shareholders to do the same.
Expectations among investors had been high since last month when Lee Shush-der, the island’s new finance minister, said the new administration would prefer an open auction for its remaining Chang Hwa shares over a negotiated merger with Taishin Bank if that were more in the interests of minority shareholders.
But in spite of lobbying from foreign investors this week, the cabinet had still not outlined its voting intentions Thursday.