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Cathay Financial sets sights on RCBC
Taiwan News, Staff Writer
2014-08-28 12:08 PM

As domestic financial holding companies ramp up plans to establish beachheads into the Asian market, foreign media has reported that Cathay Financial Holding Co., Ltd. (2882) will acquire Rizal Commercial Banking Corp (RCBC) in the Philippines. Cathay Financial will take at least a 20% to 30% stake in RCBC with total merger value estimated at over NT$15 billion to NT$20 billion. Cathay Financial offered no comment concerning this report Wednesday. Financial Supervisory Commission (FSC) Chairman Tseng Ming-chung stated that he was aware of this matter, indirectly confirming this merger.

 

According to reports, Cathay Financial is considering a number of methods for acquiring this Filipino bank. Even though the primary instigator is Cathay Life Insurance with its NT$4 trillion in capitalization, since the operator will be Cathay United Bank, Cathay Financial is also considering a bank and life insurance company joint venture.

If Cathay Financial wishes to acquire RCBC’s entire float, an estimated NT$40 billion to NT$50 billion will be required. However, RCBC’s financial report shows that majority shareholder PMMIC holds a 45.2% stake. Cathay Financial only needs to hold a larger stake than PMMIC to obtain management rights.

 

Tseng stated Wednesday that he was “aware of this matter” and revealed that domestic financial holding companies are all aggressively laying out related plans. Everyone is under a lot of pressure and good news will follow one after another with a large project guaranteed before year’s end.

 

Cathay Financial spokesperson Alan Lee had “no comment” regarding the RCBC merger but, instead, emphasized Cathay Financial is, indeed, aggressively preparing to expand into the rest of Asia and will not forgo any viable opportunities. However, many current projects face challenges from Japanese financial institutions and especially from Japanese insurance companies. These companies possess a more liberal calculation of risk-based capital (RBC) than Taiwanese insurers as a whole and, thus, can offer higher bids than Taiwanese financial institutions.

 

However, Lee stated, the FSC had previously promised to lower the RBC coefficient of insurance companies’ overseas acquisitions. Currently the coefficient is 67% which means for every NT$100 spent on a merger, shareholders have to provide NT$67. If Japan’s example is followed and the coefficient lowered to 27%, “in the short term, domestic insurers are confident their bids will beat those of Japanese insurance companies.”

 

In Q2 of this year, Indonesian insurance company Secuis was offered for sale. Due to high profit margins and huge market growth potential, many Japanese and Taiwanese insurance companies made bids. Cathay Life also assessed the matter and took action. However, Nippon Life Insurance Company ended up with the winning bid of NT$10 billion.

The Filipino government signaled its intention in July to allow foreign capital to hold a 100% stake in Filipino banks. RCBC is a local bank established in 1960 which then shifted to focus on the Chinese market in the Philippines. Its asset size is approximately NT$300 billion, equivalent to a small to mid-size domestic bank. However, the net profit margin of Filipino banks is approximately 4% and economic growth in the Philippines is strong. RCBC regularly posts annual profits of over NT$4 billion and has a bright future. Currently, there are Japanese financial institutions and other institutions competing for RCBC.

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