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Fund-raising woes force Chunghwa Picture Tubes to delay plans to expand its flat-screen capacity

Chunghwa Picture Tubes, Taiwan's No3 maker of flat display panels, has put its expansion plans on hold.

Confirming yesterday that its plans to build a new fabrication plant for liquid crystal display (LCD) screens would be delayed indefinitely, the  firm said it was only  acquiring the land and had yet to decide on what size of panels to build.  The delay  is expected to last at least six months.

The new facility now put on hold was intended to be Chunghwa's first factory in the Central Science Park in Taichung. Construction was due to start in January but  no new completion target date was announced.

'We haven't decided what generation [of screens] to build. We have some proposals to discuss internally that we just want to talk about,' said Sophia Tsao, an investor relations officer of the company.

To date, the company has been limited in its capacity to build large LCD television screens. The new Taichung fabrication plant under discussion was thought likely to be a Generation 7.5 or Generation 8 facility, costing NT$100 billion ($23.32 billion) to NT$120 billion.

By contrast, Taiwan's AU Optronics has had a Generation 6 fab in mass production since March and is  building its first Generation 7.5 facility.

Chunghwa is among Taiwan's second-tier TFT-LCD makers that include Hannstar and Quanta Display,  all struggling to keep up with world leaders Samsung and LG Phillips of South Korea and  local counterparts AU Optronics and Chi Mei Optoelectronics.

It has been rumoured to be looking at a merger with rival Hannstar, a move that would help it build economies of scale and stave off financial difficulties. But differences over who would lead the merged company are among the issues believed to be bogging down talks.

With  NT$41 billion in cash and short-term loans at the end of June, Chunghwa's current financial position puts it  NT$60 billion to NT$80 billion short of the funds needed in a capital market shy of flat-panel fund-raising.  Its planned NT$16 billion European  global depositary receipt sale in July failed, although it did manage to raise NT$13 billion in a syndicated loan last week.

'The main reason [for the delay] is the difficulty in fund-raising,' said Frank Su, an  analyst for BNP Paribas.

Mr Su cited  a rumour that  Chunghwa's latest GDR was railroaded by the government which is keen to force the industry to consolidate.

The government is believed to have exerted pressure on financial institutions and the company to cancel the deal. It denies the rumour of interference but admits  it does want to see consolidation happen soon.

'I don't think the government is that powerful,' said Chen Chao-yih, director-general of the economics ministry's Industrial Development Bureau.

'We can convey the message to the companies but we can't give specific guidance.'

The company posted a 16 per cent operating loss of NT$2.8 billion on its TFT-LCD business unit in second quarter, dragging it into a 13 per cent operating loss despite its  cathode ray tube business  being profitable with a 10 per cent operating profit of NT$556 million.

A return to the black is expected in the third quarter but it probably is  not enough to keep it viable in the long term.

'If they're going to be viable, they need to maintain an ebitda margin of between 15 per cent and 20 per cent and that's just to keep up,' Mr Su said.



Picture freezes for panel firm