Taipei, Oct. 18 (CNA)－Taiwan-based manufacturing giant Hon Hai Precision Industry Co. share-trading was suspended Thursday through Oct. 25 and saw its reference opening price set at NT$82.6 (US$2.67) upon trading resumption Oct. 26, according to the Taiwan Stock
Suspension of share-trading of Hon Hai, an iPhone assembler, was because a capital reduction of about 20 percent is in process.
Known as Foxconn internationally, Hon Hai announced in May the capital reduction plan to lower its paid-in capital by NT$34.66 billion, or about 20 percent, to NT$138.63 billion. To complete the capital reduction, the company will return NT$2 in cash to shareholders for every share they hold Oct. 26, and its book value per share is expected to rise to NT$83.23, from the current NT$68.58.
Hon Hai Chairman Terry Gou (郭台銘) is expected to pocket NT$3.24 billion from the capital reduction as he owns about 1.62 billion shares. It is the first time Hon Hai has launched a capital reduction since it first went public June 18, 1991, and its goal is to improve its capital structure and boost returns for shareholders.
Analysts said the capital reduction comes amid slower sales growth in Hon Hai’s contract manufacturing operations, adding that the move could boost Hon Hai’s return on equity by about 20 percent and strengthen investor confidence in the stock.
However, TWSE data shows that many foreign institutional investors appeared reluctant to participate in Hon Hai’s capital reduction plan and stood on the sell side of the stock in recent sessions.
Foreign institutional investors recorded a net sale of Hon Hai shares for the ninth consecutive session Wednesday, the last trading day before the suspension, selling a net 127.54 million shares. Along with local institutional investors, the combined net sales hit about 130 million shares in the nine sessions.
Due to the sell-off by institutional investors, Hon Hai shares dipped to close at NT$68.10, the lowest level since Oct. 5, 2011, when the stock ended at NT$67.60. The analysts said the selling in Hon Hai shares came in line with a fall on the broader market, which has been affected by concern over a stronger U.S. dollar during the current rate hike cycle by the U.S.
Federal Reserve, causing more funds to leave the local market and drain liquidity. The benchmark weighted index on the main board had failed to return to the 10,000 point mark in the previous three trading sessions after the market suffered heavy losses last week.
More important, the analysts said, the reason why foreign institutional investors and even local investors were not interested in Hon Hai shares was because of uncertainty over global demand for tech devices in the fourth quarter of this year and the first half of next year amid escalating trade friction between the United States and China.
Financial Supervisory Commission Chairman Wellington Koo (顧立雄) told reporters that Hon Hai has been prohibited from launching any plan to issue new shares to raise capital size within one year of the capital reduction.