"Like the Korean purchase, this deal is financed by an equity placing. Rather than accumulating cash and then feeling under pressure to do a deal, or return money to shareholders, Standard Chartered runs a tight balance sheet and then raises money from shareholders when needed. Happily, management’s confidence in investors is reciprocated."
==
Standard Chartered/Taiwan
Published: September 29 2006 13:47 | Last updated: September 29 2006 13:47
Last month, Standard Chartered reported a jump in credit card provisions in its Taiwanese business. So its $1.2bn acquisition of Hsinchu International Bank, the first foreign bank takeover in Taiwan, was a big bet that the worst of the country’s consumer credit crisis is over.
But it is hardly an impulse buy: group chief executive Mervyn Davies has been shopping for a Taiwanese bank for 10 years. Why now? Recent difficulties may have loosened the grip of shareholding families, at a time when foreigners’ appetite for acquisitions temporarily dipped. This means that the price, equivalent to 13 times 2005 earnings, does not look unreasonable – provided you believe that earnings are set to rebound
Standard Chartered’s experience in Taiwan should help it make an accurate prognosis. And credit cards, the worst hit sector, account for less than 1 per cent of Hsinchu’s assets. The Taiwanese banking market may not offer the rapid growth of emerging economies. But it is crucial to the group’s strategy in East Asia, where it seeks to take advantage of trade and investment flows, after a Korean acquisition less than two years ago.
Like the Korean purchase, this deal is financed by an equity placing.* Rather than accumulating cash and then feeling under pressure to do a deal, or return money to shareholders, Standard Chartered runs a tight balance sheet and then raises money from shareholders when needed. Happily, management’s confidence in investors is reciprocated.
Copyright The Financial Times Limited 2006
* Equity placing: The process by which investors subscribe for shares in a company.
Comments