June 28, 2013
Industry News

Bad Timing For Formosa Plastics

FPC, the largest industrial group in Taiwan, has postponed plans to sell more than 500 million shares of subsidiary, citing bad timing and falling stock markets.

Formosa Plastics Delays Stock Sale Amid Market Uncertainty

Ho Shui-wen, the general administration director of Formosa Plastics Group, attributes the recent global stock market decline to the United States' termination of its quantitative easing policy and a reduction in money supply in China. This has led the conglomerate to hold off on selling stock at this time, given the unfavorable market conditions.

Three subsidiaries of Formosa Plastics Group, namely Formosa Plastics Corp, Formosa Chemicals & Fibre Corp, and Nan Ya Plastics Corp, initially planned to sell over 190,000,000 shares each of Formosa Petrochemical by the end of June, equating to roughly 2% of the shares. The purpose of this sale was to enhance the financial structure of Formosa Petrochemical.

However, due to the volatile local stock market, Formosa Plastics USA and the Chang Gung Medical Foundation have committed to purchasing 40% of these shares, with the remaining portion to be acquired by three different brokers. Formosa Plastics Group believes that waiting for a more stable market is a prudent strategy to maximize the sale's success.

Outlook for Formosa Plastics Group

Raymond Hsu, a credit analyst at Taiwan Ratings, maintains a base-case scenario predicting a slight improvement in operating performance for Formosa Plastics Group. Additionally, the use of non-debt financing is expected to gradually enhance the conglomerate's credit metrics over the next one to two years. Nevertheless, the subsidiary companies have received generally negative outlook ratings from Taiwan Ratings. Their prospects of improving credit metrics in the short term are hampered by the subsidiaries' weak operations and substantial overseas capital expenditure.

Expansion Plans in China

Formosa Plastics Group has recently received approval to construct an electrolyte solution production plant in China through a joint venture with Mitsui Chemicals Inc. The plant's annual production capacity is set at five thousand tons of the solution. According to the Fair Trade Commission, this joint venture is not expected to significantly affect the domestic lithium-ion battery industry, which is open to exports and features a low market barrier. However, the investment requires approval from the Ministry of Economic Affairs' Investment Commission due to its substantial size, totaling approximately $20.5 million USD before May 2015.


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