UPDATE: Carlyle-Led Group Shelves Plan To Sell Ta Chong Stake

TAIPEI (Dow Jones)--A Carlyle Group L.P. (CG)-led consortium has shelved its plan to sell a controlling stake in Taiwan's Ta Chong Bank Ltd. (2847.TW) because the offers from potential buyers didn't meet the seller's expectation, according to people familiar with the situation, casting doubt on other pending private-equity exits in the island's banking industry.

Carlyle and the Chen family, a major shareholder of Ta Chong, were looking to sell a combined stake of around 70% in the medium-sized Taiwanese bank. Based on the bank's US$789 million market capitalization as of Monday, the stake would be valued around US$552 million. The seller hired Barclays Capital and JP Morgan to handle the sale, the people said, declining to disclose the dollar value of the offers.

Carlyle first bought into Ta Chong in July 2007 at NT$17.00 apiece, when the share price stood at NT$12.45. It has been trading below Carlyle's purchase price since then, hovering between NT$3.09 and NT$13.80. Shares of Ta Chong closed at NT$10.20 Monday, at a price-to-tangible book value of 1.1 times, according to S&P Capital IQ.

Banks in Taiwan are among the least profitable in Asia, as net interest margins have remained in the very low single digits due to a crowded market. Earnings are also weighed down by the tight capital requirements imposed by the regulator in recent years.

Some bankers said dismal earnings growth and share price performance have forced foreign investors to either sit on their investments or to exit without making profits, or even with losses.

The last private-equity sale in Taiwan's banking industry was by TPG Inc., which trimmed its stake in Taishin Financial Holding Co. (2887.TW) to 6.55% from 14.82% late last year at NT$18.30 apiece, little changed from the NT$18.00 apiece it paid for the stake in 2006.

Tokyo-based Longreach Group has hired Morgan Stanley to explore a sale of its stake in En Tie Commercial Bank, a small local lender. Cosmos Bank, another small bank, counts as its shareholders SAC Private Capital Group LLC and GE Money, which haven't indicated what they intend to do with their investment.

In Carlyle's planned exit, two potential buyers had emerged--Fubon Financial Holding Co. (2881.TW) and Yuanta Financial Holding Co. (2885.TW)--but the sale was called off on Friday, the people said. The separate proposals from Fubon and Yuanta involved swapping the respective company's shares for a controlling stake in Ta Chong Bank, the people said, declining to disclose specific terms.

The people said the recent decline in global stock markets is the main reason behind the shelving of the deal.

One of the persons added that both Fubon and Yuanta planned to acquire Ta Chong and merge it with their own financial conglomerates, but the Chen family's "emotional attachment to Ta Chong" has been one of the obstacles to the sale.

Ta Chong confirmed Monday both Fubon and Yuanta had been dropped from the process. It didn't elaborate.

-By Aries Poon, Dow Jones Newswires; 886-2-25022557; aries.poon@dowjones.com

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