| HONG KONG
HONG KONG Private equity firm Carlyle Group has hired J.P. Morgan (JPM.N) to sell its around $330 million stake in Taiwan's Ta Chong Bank 2847.TW, sources said on Thursday, in a deal that could lead to consolidation in Taiwan's low-margin bank sector.
Washington, D.C.-based Carlyle may be working to convince other shareholders at the bank to add their stakes to the sale in order to offer a controlling stake to buyers, the sources said.
Media reports in Taiwan have said Fubon Financial (2881.TW) and Yuanta Financial (2885.TW) are interested in buying Carlyle's stake.
Public disclosures show Carlyle owns a 23.76 percent stake in Ta Chong, but a source familiar with the matter previously told Reuters that including options and other vehicles, Carlyle's stake totals around 40 percent.
Carlyle bought a 35 percent stake in Ta Chong in 2007 for NT$21.5 billion ($729 million), part of a wave of private equity investments in Taiwan's banks.
But the island's competitive, fragmented banking market has never produced the returns investors such as Carlyle had sought, and the firm is now among a number of private equity firms looking to exit their stakes.
Longreach has hired Morgan Stanley (MS.N) to sell its stake in Entie Commercial Ltd (2849.TW), while TPG Capital TPG.UL in December cut its stake in Taishin Financial (2887.TW) to 6.55 percent from 14.82 percent, including selling 3.45 percent to Cathay Financial (2882.TW), Taiwan's largest financial holding firm, for $155 million.
Buyout firms such as TPG, Longreach and Carlyle hoped low valuations, China's growth prospects and a local consolidation wave would boost the investments they made in Taiwan.
But the return on assets from Taiwan's banks in 2011 was 0.53 percent, the lowest among banks in Asia excluding Japan, according to Fitch Ratings in Taiwan.
They also operate with little in the way of overseas operations to fuel growth.
While their banking investments might not make the returns originally expected, Carlyle, Longreach and TPG are all raising new funds for Asia.
Carlyle is planning a new Asia fund of around $3.5 billion, according to a source familiar with the matter, and is expected to launch the fundraising at a meeting with investors in Japan next month.
As part of the planned stake sale, Carlyle is also tidying up Ta Chong's capital structure and has asked banks to refinance a loan of around NT$12.3 billion ($417 million), Thomson Reuters publication Basis Point reported on Wednesday.
The refinancing will free up some of Carlyle's shares for sale. The shares were pledged as collateral on the existing loan, when Carlyle invested in Ta Chong in 2007.
The sources could not be named because the matter was private. Carlyle and J.P. Morgan declined comment. A Ta Chong Bank spokesman said he was not aware of the process.
(Additional reporting by Rachel Lee in Hong Kong and Sandra Tsui of Basis Point; Editing by Matt Driskill and David Holmes)