Chunghwa abandons $1.5bn offering

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Chunghwa Telecom, Taiwan’s leading telecoms operator, has abandoned a routine $1.5bn follow-on share offering following 11th-hour government infighting over rules governing the appointment of investment banks for the sale.

The decision to scrap the sale will heighten concerns over the climate for deal-making in the country and is significant for investors because the sale had been expected to be completed before the stock goes ex-dividend on August 10.

The Taiwanese government, which began selling shares in Chunghwa in 2003, retains a 41 per cent stake in the company. The ministry of transportation and communications was recently charged with overseeing a selldown of a further 8 per cent of the high-yield stock, most of which was expected to have been sold to international investors.

Chunghwa last month invited investment banks to pitch for the advisory mandate and had expected to unveil the victors last week.

However, the ministry of finance intervened to insist that the company complied with anti-corruption government procurement laws that say a 28-day bidding period must elapse before mandates can be awarded for state asset and share sales.

The stance came as a surprise to the company and to bankers, as Chunghwa is legally able to pick its advisers without recourse to the government procurement laws. The group became a private company after a selldown last year lowered the government’s stake to below 50 per cent.

Analysts said Chunghwa’s decision to cave in to political pressure highlighted Taiwan’s inefficient bureaucracy, blamed for stalling economic reforms and bogging down day-to-day government operations.

One banker familiar with the sale process said: “Taiwan can be a difficult place to conduct business but this episode is worse than usual. The government is left with major egg on its face.”

Another banker said: “All the banks made a sales pitch last month. Now we could be asked to re-pitch fairly soon; but given the inevitable leaks everyone will know each other’s tactics and pricing. It is a farce.”

A ministry of finance official defended the department’s approach, and said the company had to comply with the procurement laws because the share sale represented a large government divestment.

Chou Hsien-yang said: “There has been so much debate over privatisations and other state share sales, and the just-concluded economic reform conference has demanded that we adopt fairer and more transparent practices for these steps. Under these circumstances, we must make such strict demands.”

The company said it would decide when to restart the share sale once it had finished negotiations over which parts of government procurement law would have to be followed.

Goldman Sachs, Morgan Stanley and UBS handled last year’s selldown.

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