Taiwan's Fubon to raise $50 billion from share issue to fund Jih Sun merger
By Gloria Cho
TAIPEI, NNA - Fubon Financial Holding Co. will raise fresh capital of about NT$50 billion by issuing common shares and special shares in the second half of this year to fund its takeover of smaller rival Jih Sun Financial Holdings Co.
Fubon Financial made a successful bid with NT$13 per share for 2.03 billion or 53.84 percent of Jih Sun Financial’s outstanding shares in a public tender on Tuesday. The total purchase is worth NT$49.04 billion.
As it becomes the country's second-largest financial holding company by assets, Fubon Financial said in a statement that its merger with Jih Sun Financial would boost the position of Fubon Financial and expand its banking and securities businesses and clientele significantly.
The deal, to be completed this week, marks the first time that a local financial holding company has acquired an industry peer in Taiwan after its financial supervisory commission allowed such mergers and acquisitions in 2018 because there were too many players.
Richard M. Tsai, chairman of Fubon Financial, said, “The takeover will help us to solidify banking and securities arms and drive economies of scale and operation efficiency as a whole.”
The company’s Taipei Fubon Commercial Bank will merge with Jih Sun International Bank, while its securities division, Fubon Securities Co, will integrate with Jih Sun Securities Co.
Tsai said the expanded group is set to offer a wider array of products and services as it grows to become one of the top financial players in Asia.
Analysts said such mergers would give expanded finance companies more muscle and resources to cope with market challenges such as low interest rates, help them lower costs of regulatory compliance as well as fund fintech adoption and expansion.
William Lai, a research fellow at Taiwan Academy of Banking and Finance, told NNA that Fubon Financial found Jih Sun appealing as it is well-established with a long history in the securities business and an extensive customer base since 1970.
Fubon Financial logged a total revenue of NT$100.4 billion for the first two months of this year, showing a 6.3 percent increase from a year ago. It recorded a ROE (return on equity) of 10.94 percent and an EPS (earnings per share) of 5.46 in 2019.
Set up 60 years ago as an insurer, Fubon Financial has grown into a financial powerhouse with banking, securities, and wealth management businesses.
The holding group might face risks of ROE and EPS dilution in the aftermath of the takeover, a Morgan Stanley analyst told NNA. To what extent the merger would contribute to its revenue in the long run will depend on the execution efficiency of the integration, he said.
Data from the financial supervisory commission reflects a fragmented market with a total of 37 domestic banks and 16 local financial holding companies operating in Taiwan. Domestic finance and insurance sectors generated a market value amounting to NT$1.32 trillion in 2020.