Goldman Sachs wins Chunghwa Telecom mandate

In what must rank as one of the fastest decisions in Asian privatization history, Goldman Sachs was chosen as global co-ordinator of Chunghwa Telecom within hours of final bake-offs on Saturday.

The US investment bank emerged victorious on Saturday night after coming top of a points system designed by the Taiwanese government committee which had the task of selecting one global co-ordinator and two bookrunners for the roughly $4 billion ADR sale.

UBS Warburg, which scored the second most points, consequently won one bookrunners slot, with Merrill Lynch, which came third, securing the other. Deutsche Bank, which came fourth, just missed out, while Morgan Stanley Dean Witter, long considered one of the hot favourites to win the deal, must have been sorely disappointed to come fifth. Also shortlisted were Credit Suisse First Boston and Salomon Smith Barney.

A total of 11 investment banks had submitted proposals by the cut-off date of August 28. Credit Lyonnais Securities and Donaldson Lufkin & Jenrette (DLJ) were, however, disqualified in the early stages for failing to meet all the criteria, with Dresdner Kleinwort Benson (DKB) and Nomura dropped before the final shortlist of seven made their final bids on Saturday.

Some bankers said that the speed of the decision by Taiwan's Ministry of Transport and Communications reflected officials' desire to be seen to be fair and above board. "They were absolutely determined not to open themselves to potential corruption and bribery charges and wanted to make the decision as fast as possible," one banker commented.

Others, however, said that such a quick decision smacked of one that had already been made prior to final proposals. It was certainly surprising in the light of the bureaucratic hurdles through which most Asian privatizations have to pass. And in Chunghwa's case, it tops years of delays getting the company ready for public flotation, weeks of delays getting the RFP (request for proposals) out to bankers and finally now, a couple of months delay in the launch of the ADR, which has been pushed back from December 2000 to February 2001.

For Goldman Sachs, the mandate marks the culmination of years of preparation and an extremely nervous last week after it came under a very public spotlight in Taiwan, where unidentified government officials were quoted as saying that it was being disqualified. The statements, subsequently refuted by company officials, alleged that Goldman would be dropped because it had previously advised the government on the privatization and employed former Chairman Steven Chen's son Chen Li-fu.

The intense competition, paranoia and jockeying for position that has accompanied the long build-up to the highly lucrative mandate has prompted any number of allegations and wild rumours. The potential fall-out became steadily more serious, however, after the election of the country's new President Chen Shi-bian earlier this year. Breaking the Kuomintang's 50-year stranglehold on power, Chen, backed by the Democratic Progressive Party, also vowed to break up the cozy relationship between government and business and the corruption and conflicts of interest that had arisen from it.

For Chunghwa itself, the next stage of the privatization process comes with its domestic retail offering. Slated to run from September 6 to 25, with listing on October 5, the offering will comprise a 13.84% share sale at an issue price of NT$104 ($3.35). The issue amount has been increased slightly from 13% following a poor reception from domestic institutions when a 3% stake was auctioned mid-August.

The company only managed to achieve an 80% subscription rate, and at the minimum issue price of NT$104, after institutions complained that the stock was either fully or overvalued. In total, the government is hoping to sell 33% of the company through a first round of privatization this year and a further 33% next year. The ADR will comprise 12%.

At its minimum floor price, the company's 9.64 billion share equity base has been valued at NT$1.002 trillion ($32.18 billion), potentially making Chunghwa the third largest listed company in Taiwan behind semiconductor giants TSMC and UMC.

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