State ruling could derail Chunghwa’s privatisation

3 Jun 2003

Taiwan’s state legislature, the Li fa Yuan, has passed a resolution which threatens to delay, if not indefinitely scupper, Chunghwa Telecom’s long-running efforts to find an international strategic investor for the company. Last Friday’s resolution, which was tabled by opposition Nationalists and People First Party, forces the government to hold ten domestic share offerings prior to holding a block sale to institutional investors. In addition, any sale of shares carrying a value in excess of TWD200 million (or 0.04%) must be declared at least two months in advance of the deal. Moreover, the notification period for share sales exceeding 2% of Chunghwa is five months. The decision is a bitter blow to the PTO’s management as it effectively bars their preferred route to privatisation. A company official has gone on record as saying that ‘the vote seems to apply not only to public block auctions but also on a possible strategic partnership with a foreign telecom company involving an equity stake’.

The state still controls around 81.41% of Chunghwa Telecom, while the Taiwanese TCC-led consortium holds a 13.5% stake following a sale of shares in December 2002; the remainder is in the hands of investors after a series of low-key auctions held over a two-year period. However, the TCC-led sale caused consternation among opposition politicians who accused the government of collusion by skewing the conditions to favour a pre-selected bidder. Their vote in parliament has now put paid to privatisation in the long term and left the government with a headache. Friday’s decision makes it unlikely that the state will reach its target of reducing its holding to below 50% by the end of the year. Plans to auction off another twelve or 13% tranche domestically have been shelved, although efforts to issue American Depositary Receipts (ADRs) will still go ahead this summer.