According to sources, the deal is expected to be launched before the end of this month after some preparation work that is needed because the bulk of the offer will be sold in the form of American Depositary Receipts.
Sources say the company and the government have given no indication of the size of the sale, but noted that it may turn out to be smaller than the $1.2 billion to $1.3 billion originally planned. The reason for that is that Taiwan Mobile, which was to sell its remaining stake alongside the government, has been offloading shares in the market ever since the original timetable was delayed. The government may also change its initial plan based on its budgetary needs.
One banker says he believes the deal may now involve less than 600 million shares, or around 6.2% of the company, which based on yesterdayÆs closing price of NT$54.50 would put the total size at about $990 million û or in his words ôclose to $1 billionö.
According to an earlier company announcement, the government and Taiwan Mobile are looking to jointly sell up to 750 million shares in the telecom carrier, or about 7.8% of the issued share capital. Since then, however, Taiwan Mobile has more than halved its stake to 0.74% from 1.55%, according to 10 disclosure announcements on its website.
The deal was initially expected to be mandated at the end of July and launched in early August, but was delayed after the Ministry of Finance decided that a formal 28-day bidding period must be adhered to before the bookrunning mandates could be awarded.
The government felt the sale needed to comply with the Taiwan procurement laws since the state still owns 41.5% of Chunghwa Telecom. The Ministry of Transport & Communication (MOTC), which holds the shares on behalf of the government, on the other hand, hadnÆt seen a need for such a cumbersome process and had given banks about one week to reply to the original request for proposals.
As a result of the MOFÆs involvement, a new round of RFPs was sent out in mid-August and the submission deadline was reset for September 13.
According to sources, Goldman, Morgan Stanley and UBS were told of their mandates late on Sunday after an evaluation exercise that included each bank having to provide an account of how they plan to arrive at their suggested price level under different market conditions. The choice came as no surprise, given that the same three banks also arranged last yearÆs privatisation of the telecom carrier.
Fees were all but eliminated as a bidding tool this time around as the government told the interested banks that it would pay a fixed amount for their services, according to market sources. While there was no information available about the size of that fee, it was believed to be between 30 and 40 basis points.
The fact that the deal has been delayed by more than a month, has meant that the key selling argument for the stock û a dividend yield of about 8% û can no longer be applied as the stock went ex-dividend on August 10. Prospective investors will now have to wait a whole year to get the same return that would have been available in a matter of days had the share sale taken place before the ex-dividend date.
Last year when the government offloaded a 17% stake in the company, which brought its holdings below 50% for the first time, the sale was done a few days before the stock went ex-dividend.
There have also been some concerns about launching a government-backed deal at a time when Taiwan has been seeing daily street protests calling for President Chen Shui-Bian to step down following a series of corruption and insider trading accusations involving members of his family.
However, after separate rallies for and against the president over the weekend ended peacefully and ChenÆs opponents cancelled plans for more widespread demonstrations, the local stock market rebounded to see its biggest one-day gain in two years. Market watchers cited a reduction in political uncertainty, but noted that lower inflation data and an improvement in consumer confidence in the US also had a role in the 3% gain in the index.
Government sell-downs also tend to attract a lot of attention and it is highly possible that this deal will still end up pricing at a very tight discount to the Taiwan-traded common share û dividend or no dividend. However, some bankers argue that the discount to the market price may have to be greater to account for the reduced possibility of a ôquick return.ö
The share price finished flat yesterday after falling 8.5% since the beginning of August, which is primarily to do with the $4.30 cash dividend being taken out of the equation. The stock is down 6.9% this year, compared with a 5.1% gain in the Taiwan benchmark index.
Some indication perhaps that there is interest in the Taiwan telecom sector among international investors came yesterday when the single largest shareholder in mobile operator Far EasTone Telecommunications managed to sell a 2% stake in the company at a modest 1.7% discount, even though the share price closed only NT$0.30 above its 52-week low.
The $82 million Credit Suisse-led deal saw Far East Textile trim its stake in the company to 45% from 47% in what was seen to be a ôbalance-sheet-efficient wayö for it to raise money needed for internal purposes. The sale, which was done in the form of GDRs, was said to have attracted ôgood demandö and was completed in about two hours.
One banker says he was puzzled by the interest, given the declining share price trend. ôThere is no reason to own this stock apart from the dividend, and the company has just paid that,ö he says. ôNow you have to wait another year for the next one.ö
Puzzling perhaps, but the Far EasTone sale suggests investors are looking at a longer time-frame and that should bode well for Chunghwa Telecom too.
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