VZCZCXRO0847
RR RUEHGH
DE RUEHIN #3985/01 3330321
ZNR UUUUU ZZH
R 290321Z NOV 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3219
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3490
RUEHBJ/AMEMBASSY BEIJING 6001
RUEHUL/AMEMBASSY SEOUL 8284
RUEHGP/AMEMBASSY SINGAPORE 6697
RUEHKO/AMEMBASSY TOKYO 8252
RUEHML/AMEMBASSY MANILA 9850
RUEHJA/AMEMBASSY JAKARTA 3950
RUEHKL/AMEMBASSY KUALA LUMPUR 3599
RUEHHI/AMEMBASSY HANOI 3165
RUEHBY/AMEMBASSY CANBERRA 4378
RUEHWL/AMEMBASSY WELLINGTON 1626
RUEHHK/AMCONSUL HONG KONG 7225
RUEHGH/AMCONSUL SHANGHAI 0576
RUEHGZ/AMCONSUL GUANGZHOU 9759

UNCLAS SECTION 01 OF 02 TAIPEI 003985 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN EIND ECON PINR TW
SUBJECT: Another Taiwan-PRC Rumor Bites the Dust 
 
REF: Taipei 2695 
 
¶1.  SUMMARY: Local and international media have erroneously reported 
Advanced Semiconductor Engineering (ASE) would be freed for China 
investments if Carlyle Group acquires and de-lists ASE from the 
Taiwan stock exchange.  In fact, Taiwan's 40% ceiling on investment 
in China applies to all companies registered in Taiwan, whether or 
not they are listed.  However, this acquisition plan is an example 
of the surging foreign investment into Taiwan and the impact of 
allowing foreign investors to use cheap local funds to finance 
direct investment here.  END SUMMARY. 
 
Planned Acquisition 
------------------- 
 
¶2.  On November 26, Carlyle Group, a U.S. private equity fund, 
announced plans to acquire Taiwan's Advanced Semiconductor 
Engineering (ASE), the world largest chip packaging firm, by 
purchasing ASE shares from the Taiwan Stock Exchange (TSE).  Carlyle 
set its purchase price at NT$39 (US$1.18 at the exchange rate of 
NT$33 per US Dollar) per share, higher than prevailing market price 
of NT$35.5 (US$1.07).  The total acquisition cost is estimated at 
NT$180 billion (US$5.45 billion).  Carlyle announced that after 
acquiring majority equity in ASE it will de-list ASE from the TSE. 
 
Not a Way to Circumvent PRC Investment Limits 
--------------------------------------------- 
 
¶3.  Local and international media have incorrectly reported that 
Carlyle's acquisition is designed to permit ASE to circumvent 
Taiwan's restrictions on investment in China.  These media reports 
incorrectly imply that once ASE is de-listed from the TSE, it is no 
longer subject to a 40% of net worth limit on investment in the 
PRC. 
 
Registration vs. Listing 
------------------------ 
 
¶4.  In fact, Taiwan's PRC investment limits apply to all companies 
registered in Taiwan, not just listed companies.  Companies 
registered in Taiwan are subject to the restrictions even though 
foreign ownership reaches 100%. 
 
Requirements and Restrictions 
----------------------------- 
 
¶5.  Article 35 of the Taiwan's Cross-Strait People Relations Act 
specifically requires Taiwan companies to obtain permits for their 
investment in China.  Based on this article, the Ministry of 
Economic Affairs (MOEA) has set the Regulations Governing Investment 
in and Technical Cooperation with China.  Requirements and 
restrictions are as follows: 
 
¶6.  Taiwan companies shall report their investment projects to the 
MOEA Foreign Investment Commission (FIC) if their investment is 
below US$200,000.  If the investment exceeds US$200,000, investors 
shall obtain prior permits from the FIC and their projects are 
subject to following limits: 
 
¶7.  For individual persons and small and medium enterprises (SMEs) 
defined as companies with paid-in capital below NT$80 million, total 
investment in China may not exceed NT$80 million (US$2.4 million). 
 
¶8.  For enterprises with paid-in capital exceeding NT$80 million, 
total investment in China below NT$5 billion (US$151.5 million) may 
not exceed 40% of the net worth or NT$80 million, whichever is 
higher. 
 
¶9.  For projects with investment ranging from NT$5 billion to NT$10 
 
TAIPEI 00003985  002 OF 002 
 
 
billion (US$303 million), the first NT$5 billion of investment may 
not exceed 40% of the company's net worth, and the investment above 
NT$5 billion may not exceed 30% of the net worth. 
 
¶10.  For projects with investment above NT$10 billion, the limits 
shall be 40% of the net worth on the first NT$5 billion, 30% of the 
net worth on investment NT$5-10 billion, and 20% of the net worth on 
the part of investment above NT$10 billion. 
 
ASE Well below PRC Investment Limits 
------------------------------------ 
 
¶11.  ASE is currently well under Taiwan's PRC investment limits.  An 
FIC official told AIT/T that ASE's current investment in China is 
only about 10% of its net worth.  ASE plans to increase its PRC 
investment, but its total investment including the planned 
additional investment will be only 14% of the net worth, still well 
below the 40% limit. 
 
COMMENT 
------- 
 
¶12.  The Carlyle bid is part of a growing number of foreign 
investors using inexpensive local funding for merger and acquisition 
(M&A) in Taiwan.  According to the FIC, Carlyle plans to use NT 
Dollar loans obtained from local banks to finance the ASE 
acquisition plan.  In fact, Carlyle also used foreign currency loans 
obtained from local banks to fund its acquisition of Eastern 
Technology and Eastern TV earlier this year.  Taiwan started earlier 
this year permitting foreign investors to use NTD loans obtained 
from local banks as a source of FDI in order to to reduce excess 
liquidity (reftel).  It appears as though the measure is attracting 
foreign investors. 
 
YOUNG