Why is the market shunning Chunghwa?

6 Mar 2003

Taiwan’s latest attempt to sell off a minority stake of its national PTO Chunghwa Telecom has failed to deliver once again, throwing into doubt the state’s ambitious plans of putting the company in private hands by the end of the year. In the three-day auction concluded yesterday, the government offloaded a mere 7.42 million shares, or 0.08% of the telco, well below the target of 100 million shares, or 1% of Chunghwa, as institutional investors again shied away from dipping their toe in Taiwan’s fixed line market. The disappointing conclusion to the share offering came despite a last minute decision to drop the floor price by TWD1 to TWD51 per share, which at least saved some blushes as it generated the bulk (6.39 million) of shares sold. Whilst Chunghwa Telecom offers investors a steady if uninspiring return, the lack of interest has been squarely placed at the door of the country’s legislature which mandated a – now seemingly unrealistic – high price for the sale; the auction was designed to help plug a gap in the state budget of TWD237.4 billion.

The latest setback looks set to scupper a forthcoming overseas share sale planned for the first half of this year. However, local analysts conclude that the sale would have attracted institutional interest if it had been priced at TWD50 per share – the price paid by the Taiwan Cellular-led consortium which acquired a 13.5% stake late last year. Despite the apparent reservations over Chunghwa’s investment potential, the company performed encouragingly in 2002, particularly in the development of its broadband high speed internet access offerings; though ISDN began to tail off DSL uptake forged ahead with the company doubling its number of users. In January 2003 Taiwan was ranked second in the world in terms of DSL penetration behind South Korea, with 9.25 lines per hundred people, up from 4.83 just twelve months earlier. At that date Chunghwa Telecom’s unit HiNet claimed 1.35 million ADSL subscribers, well ahead of Digital United’s Seednet with 135,000. Other contenders include So-net which has grown to become the nation’s third largest provider of ADSL services, edging ahead of Asia-Pacific Online and Hoshin GigaMedia Center in the process. By October 2002 it had signed up 160,000 customers including 100,000 ADSL users; Eastern Broadband-backed GigaMedia had 75,000 people, Asia Pacific weighed in with a similar number, while Infoserve and Taiwan Telecommunications Network brought up the rear with 33,000 and 5,000 ADSL respectively. The level of broadband penetration is expected to rise to 70% by the end of 2006 and in order to raise residential user density for internet access the DGT is expected to back plans to strengthen Taiwan’s and Chunghwa’s fibre-optic backbone.

CIT's Yearbook of Asia-Pacific Telecommunications 2003