Sat, Sep 01, 2007 page12

• Cosmos inks MOU for fund injection

  RECAPITALIZATION PLAN Agreements with hedge fund SAC and existing shareholder GE Money saved the ailing Taiwanese lender from the threat of receivership

  • By Lisa Wang / STAFF REPORTER
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  Financially strapped Cosmos Bank (萬泰銀行) said yesterday it had signed a memorandum of understanding (MOU) to sell a controlling interest to the US hedge-fund group, SAC Private Capital Group LLC, for US$650 million in new preferential shares and convertible bonds to improve its financial structure.

  Taipei-based Cosmos also inked an MOU with GE Money, which agreed to raise its 10 percent stake by buying more new common shares and corporate bonds for US$250 million, a statement released by Cosmos showed.

  Together, SAC and GE Money would hold approximately 80 percent of the fully diluted interest in Cosmos Bank upon completion of the deal, Cosmos said.

  The two groups would buy those shares and bonds at NT$2 per share, representing a discount of about 63 percent to Cosmos' closing price of NT$5.47 on the Taiwan Stock Exchange yesterday, the Financial Supervisory Commission (FSC) said at a press briefing.

  "We welcome the deal and understand the efforts made by Cosmos to improve its financial situation by issuing new shares," FSC spokeswoman Susan Chang (張秀蓮) said.

  Chang said the financial regulator hoped Cosmos would sign definitive agreements with SAC and GE within one month to inject much-needed capital into the bank.

  After the deal, SAC would hold more than 50 percent of Cosmos' shareholding, she said.

  "This is an important step for the future of the bank. With SAC and GE Money managing Cosmos' future together, I expect Cosmos to build on their strengths and obtain new skills while leveraging its existing consumer base," Cosmos chairman Hsui Sheng-fa (許勝發) said in the statement.

  Cosmos, the nation's largest cash card issuer, has accumulated more than NT$20 billion (US$606.2 million) in losses mostly stemming from credit card loan losses, FSC data showed. Cosmos has NT$13.77 billion in capital.

  The proposed injection of fresh funds is expected to be completed in the fourth quarter of this year and is subject to execution of definitive agreements and conditions therein, including approval by the board of directors, shareholders and the commission.

  With the promise of capital injection, Cosmos was able to avoid being placed under government receivership. Yesterday was the deadline set by the FSC for Cosmos' recapitalization plan.

  Cosmos had been in talks with possible investors during the past few months for recapitalization, with both SAC and GE on its shortlist.

  SAC, which operates a US$12 billion hedge fund, has promised to maintain a long-term partnership with Cosmos and may help the bank return to health, Chang said.

  SAV will send a team to take over Cosmos, Chang said, adding that members of the team were also responsible for helping Japan's Shinsei Bank Ltd's turnaround.

  To make room for new investors, Cosmos chairman Hsui Sheng-fa and vice chairman Hsu Sen-rong (許顯榮) would resign, the commission said.

  Cosmos is scheduled to hold a board of directors' meeting next week for a reshuffle.

  Cosmos Bank, established in 1992, operates 63 branches across the country.

  GE Money has been a strategic investor in Cosmos Bank since June last year. Cosmos has made significant progress in key areas such as strengthening risk management, cash and credit card business units, expanding its wealth management portfolio and improving collections and operational capabilities.
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