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China-Taiwan Thaw Clears Way for Fubon’s Record Sino Deal

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Fubon Financial to Buy China’s First Sino Bank for $905 Million
Pedestrians walk past a branch of Fubon Financial Holding Co. in Taipei, Taiwan. Photographer: Maurice Tsai/Bloomberg

Fubon Financial Holding Co.’s 5.65 billion-yuan ($906 million) purchase of China’s First Sino Bank caps a record year for cross-strait acquisitions as economic integration between Taiwan and the mainland deepens.

Taiwan’s second-biggest publicly traded financial company by market value will buy 29 percent of First Sino and its Taipei Fubon Bank unit will purchase 51 percent, Fubon Financial said yesterday. Shares in the parent company, based in the island’s capital, rose to a 14-month high today after news of the acquisition, the largest on the mainland by a Taiwanese buyer.

Fubon Financial’s second purchase of a Chinese bank takes this year’s announced deals between companies in China and Taiwan to an all-time high of $2.2 billion, data compiled by Bloomberg show. The sale, which exceeds the $720 million the island’s companies spent on mainland targets in 2011, comes as political ties improve under the ruling Kuomintang party.

“As the relationship between China and Taiwan improves, Taiwanese companies, including banks, are seeking development on the mainland,” said Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd. “Taiwan’s banking sector is very competitive as there are too many lenders, and thus very limited room for profit growth.”

Fubon Financial will buy the stock from shareholders including Lotus World Wide Ltd., Wing Hang Bank Ltd. and Shanghai Pudong Development Bank, according to two people with knowledge of the matter and an unidentified official at Fubon.

Pudong Development Bank will retain 20 percent of First Sino after the sale, according to a draft statement seen by Bloomberg News and the Fubon official. JPMorgan Chase & Co. advised Fubon on the purchase, the two people said.

Shares Gain

Fubon Financial rose 2.3 percent to NT$35.05, the highest since Oct. 28 last year, at 9:33 a.m. in Taipei. The benchmark Taiex Index advanced 0.5 percent. Shares of Fubon have climbed 15 percent this year, beating an 8.7 percent gain in the Taiex.

Taipei Fubon and Fubon Financial will subscribe for an additional 800 million yuan of new shares after the purchase, proportionate to their holdings, according to the statement. The total payment of 6.45 billion yuan values First Sino at 2.18 times its book value based on the increased capital, Fubon said. The deal needs approval from regulators in China and Taiwan.

Mainland Operations

“Taiwanese banks are interested in getting into China to better serve Taiwanese firms on the mainland, but this might not be the case for mainland lenders,” said Francis Lun, Hong Kong-based managing director at Lyncean Securities Ltd. “There aren’t many mainland companies with operations in Taiwan, and the Taiwanese market is already very saturated.”

Taiwan’s financial regulator last year urged lenders to expand faster on the mainland as competition erodes returns at home. China, with a population more than 50 times bigger than Taiwan’s, is the island’s largest trading partner.

Taiwan is poised to become the world’s second offshore center for the Chinese currency. Fuh Hwa Securities Investment Trust Co. will start marketing Taiwan’s first yuan-denominated bond fund within three months, the company said yesterday.

Tensions between China and Taiwan have eased since President Ma Ying-jeou took the post in 2008 and dropped his predecessor’s pro-independence stance, focusing instead on strengthening economic ties with the mainland. That has helped bring relations to their warmest in more than 60 years.

China claims Taiwan as a province and has vowed to reunite it with the mainland by force if necessary. The two sides have been ruled separately since 1949, when the Kuomintang government fled to the island following its defeat by the Communists in the Chinese civil war.

Insurance Venture

Fubon’s Hong Kong unit bought 19.99 percent of Xiamen City Commercial Bank in June 2008 for $33 million, and its insurance units set up a life insurance venture with Nanjing Zijin Investment Holding Co., the company said in February last year.

First Sino Bank, founded in Shanghai in 1997, is the first joint venture bank between China and Taiwan. Total assets rose 41 percent to 40.6 billion yuan as of the end of 2011, according to its annual report. Total lending climbed 19 percent to 23.6 billion yuan last year.

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