Cablegate: Another Taiwan-Prc Rumor Bites the Dust
VZCZCXRO0847
RR RUEHGH
DE RUEHIN #3985/01 3330321
ZNR UUUUU ZZH
R 290321Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3219
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3490
RUEHBJ/AMEMBASSY BEIJING 6001
RUEHUL/AMEMBASSY SEOUL 8284
RUEHGP/AMEMBASSY SINGAPORE 6697
RUEHKO/AMEMBASSY TOKYO 8252
RUEHML/AMEMBASSY MANILA 9850
RUEHJA/AMEMBASSY JAKARTA 3950
RUEHKL/AMEMBASSY KUALA LUMPUR 3599
RUEHHI/AMEMBASSY HANOI 3165
RUEHBY/AMEMBASSY CANBERRA 4378
RUEHWL/AMEMBASSY WELLINGTON 1626
RUEHHK/AMCONSUL HONG KONG 7225
RUEHGH/AMCONSUL SHANGHAI 0576
RUEHGZ/AMCONSUL GUANGZHOU 9759
UNCLAS SECTION 01 OF 02 TAIPEI 003985
SIPDIS
SIPDIS
STATE PLEASE PASS USTR
STATE FOR EAP/RSP/TC, EAP/EP
USTR FOR ALTBACH
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN
E.O. 12958: N/A
TAGS: EINV EFIN EIND ECON PINR TW
SUBJECT: Another Taiwan-PRC Rumor Bites the Dust
REF: Taipei 2695
1. SUMMARY: Local and international media have erroneously reported
Advanced Semiconductor Engineering (ASE) would be freed for China
investments if Carlyle Group acquires and de-lists ASE from the
Taiwan stock exchange. In fact, Taiwan's 40% ceiling on investment
in China applies to all companies registered in Taiwan, whether or
not they are listed. However, this acquisition plan is an example
of the surging foreign investment into Taiwan and the impact of
allowing foreign investors to use cheap local funds to finance
direct investment here. END SUMMARY.
Planned Acquisition
-------------------
2. On November 26, Carlyle Group, a U.S. private equity fund,
announced plans to acquire Taiwan's Advanced Semiconductor
Engineering (ASE), the world largest chip packaging firm, by
purchasing ASE shares from the Taiwan Stock Exchange (TSE). Carlyle
set its purchase price at NT$39 (US$1.18 at the exchange rate of
NT$33 per US Dollar) per share, higher than prevailing market price
of NT$35.5 (US$1.07). The total acquisition cost is estimated at
NT$180 billion (US$5.45 billion). Carlyle announced that after
acquiring majority equity in ASE it will de-list ASE from the TSE.
Not a Way to Circumvent PRC Investment Limits
---------------------------------------------
3. Local and international media have incorrectly reported that
Carlyle's acquisition is designed to permit ASE to circumvent
Taiwan's restrictions on investment in China. These media reports
incorrectly imply that once ASE is de-listed from the TSE, it is no
longer subject to a 40% of net worth limit on investment in the
PRC.
Registration vs. Listing
------------------------
4. In fact, Taiwan's PRC investment limits apply to all companies
registered in Taiwan, not just listed companies. Companies
registered in Taiwan are subject to the restrictions even though
foreign ownership reaches 100%.
Requirements and Restrictions
-----------------------------
5. Article 35 of the Taiwan's Cross-Strait People Relations Act
specifically requires Taiwan companies to obtain permits for their
investment in China. Based on this article, the Ministry of
Economic Affairs (MOEA) has set the Regulations Governing Investment
in and Technical Cooperation with China. Requirements and
restrictions are as follows:
6. Taiwan companies shall report their investment projects to the
MOEA Foreign Investment Commission (FIC) if their investment is
below US$200,000. If the investment exceeds US$200,000, investors
shall obtain prior permits from the FIC and their projects are
subject to following limits:
7. For individual persons and small and medium enterprises (SMEs)
defined as companies with paid-in capital below NT$80 million, total
investment in China may not exceed NT$80 million (US$2.4 million).
8. For enterprises with paid-in capital exceeding NT$80 million,
total investment in China below NT$5 billion (US$151.5 million) may
not exceed 40% of the net worth or NT$80 million, whichever is
higher.
9. For projects with investment ranging from NT$5 billion to NT$10
TAIPEI 00003985 002 OF 002
billion (US$303 million), the first NT$5 billion of investment may
not exceed 40% of the company's net worth, and the investment above
NT$5 billion may not exceed 30% of the net worth.
10. For projects with investment above NT$10 billion, the limits
shall be 40% of the net worth on the first NT$5 billion, 30% of the
net worth on investment NT$5-10 billion, and 20% of the net worth on
the part of investment above NT$10 billion.
ASE Well below PRC Investment Limits
------------------------------------
11. ASE is currently well under Taiwan's PRC investment limits. An
FIC official told AIT/T that ASE's current investment in China is
only about 10% of its net worth. ASE plans to increase its PRC
investment, but its total investment including the planned
additional investment will be only 14% of the net worth, still well
below the 40% limit.
COMMENT
-------
12. The Carlyle bid is part of a growing number of foreign
investors using inexpensive local funding for merger and acquisition
(M&A) in Taiwan. According to the FIC, Carlyle plans to use NT
Dollar loans obtained from local banks to finance the ASE
acquisition plan. In fact, Carlyle also used foreign currency loans
obtained from local banks to fund its acquisition of Eastern
Technology and Eastern TV earlier this year. Taiwan started earlier
this year permitting foreign investors to use NTD loans obtained
from local banks as a source of FDI in order to to reduce excess
liquidity (reftel). It appears as though the measure is attracting
foreign investors.
YOUNG