Debt Ratio of Taiwan’s Top 100 Enterprises Rises to Record 436.45% in 2011: CCIS

The average debt ratio (debt to total net worth) of Taiwan’s top 100 enterprises hit a new average high of 436.45% in 2011, according to a research report released recently by the China Credit Information Service, (CCIS), a leading domestic market research firm.

The 2011 ratio was even higher than the 352.83% recorded in 2000 when the Internet bubble collapsed, and the 421.2% in 2008 when the global financial tsunami struck.

CCIS president David T. W. Chang reports that the debt ratio of the island’s top 100 enterprises has remained higher than 300% ever since 2000, with the single exception of 2001, and that it rose to above 400% in 2010 and 2011.

Last year Taiwan’s large enterprises exhibited what is known locally as “four lows and one high,” meaning low growth in assets, revenues, return on equity (ROE), and return on assets (ROA), with a high debt ratio.

Chang says that the rise in the debt ratio in 2011 was due mainly to the inability of the Taiwan enterprises to keep up with global trends, leading to lost business opportunities and reduced profits.

Influenced by the gloomy global economy, some Taiwanese enterprises have recently encountered operating difficulties and financial problems, particularly those in high-tech industries that require a large amount of capital spending. Last year the high-tech firms in the ‘top 100’ club together experienced a 56.08% decline in profits, and six of them suffered a record combined loss of NT$162.1 billion (US$5.4 billion).

To keep abreast of changes in the global market, CCIS suggests, Taiwan’s enterprises should actively develop emerging markets in mainland China and Southeast Asia and build up marketing channels there instead of holding stubbornly to their long-standing export markets in Western Europe and the United States. Taiwan’s financial institutions, for instance, should aggressively establish footholds in mainland China, not only in metropolitan cities but also in second- or third-tier cities and townships in the countryside.

The CCIS report shows that the assets of Taiwan’s top 100 enterprises totaled NT$59.63 trillion (US$1.99 trillion) last year, up 5.19% from 2010; however, their combined revenues edged down 0.57% to NT$23.25 trillion (US$775 billion) and their after-tax profits tumbled 34.71% to NT$810 billion (US$27 billion). The number of the enterprises losing money jumped to 14 in 2011, up from just four the year before.

Most of the top enterprises in terms of assets are insurance giants and financial holding companies. In 2011 the Lin Yuan Group, which includes the Cathay Financial Holding Co., Cathay Life Insurance Co., Cathay United Bank, and Cathay Construction Co., among others, boasted the highest assets, with NT$5.05254 trillion (US$168.42 billion). It was followed by the Taiwan Financial Holding Co. with assets of NT$4.257 trillion (US$141.9 billion) and Fubon Financial Holding Co. with NT$4.0441 trillion (US$134.8 billion).

Others firms that squeezed into the ‘top 10 assets club’ were, in descending order, the Taiwan Cooperative Financial Holding Co., Formosa Plastics Group, Taishin Financial Holding Co., Mega Financial Holding Co., Shin Kong Financial Holding Co., Ruentex Group, and Chinatrust Financial Holding Co.

The smallest amount of total assets required to make the top 100 was NT$42.549 billion (US$1.42 billion) in 2011, up 11.69% from NT$38.097 billion (US$1.27 billion) in 2010.

Twenty-two of the top 100 enterprises enjoyed growth in both revenues and after-tax profits last year. For eight of them, profits grew faster than revenues and revenues faster than assets: Catcher Technology Co., Core Pacific Group, Continental Holdings Corp., Ho-Tai Motor Co., Shihlin Development Co., Hua Nan Financial Holding Co., Mega Financial Holding Co., and Tung Ho Steel Enterprise Corp. Half of these are diversified firms, and the other half are engaged in traditional businesses.

The Hon Hai Precision Ind. Co., the world’s leading manufacturer of computer components and electronic parts, chalked up the greatest net revenues in 2011. Mega was the most profitable, with a net profit rate of 38.65%.

Market observers caution that Taiwan’s enterprises should be on the alert for possible adverse effects caused by looming global trade protectionism and restraints on the outflow of capital imposed by trade partners.

Faced with the possibility of an unfavorable global economic climate in the years ahead, some leading enterprises are urging the government to work out measures to deal with the situation and rescue Taiwan’s economy from its recent downturn. (JL, Oct. 2012)

Taiwan’s Most Profitable Enterprises in 2011
Rank (2011)	Rank (2010)	Enterprise	Net profit rate (%)
1	5	Mega Financial Holding	38.65
2	26	Yuanta Financial Holding	38.5
3	6	Taiwan Stock Exchange	31.17
4	3	Taiwan Semiconductor Mfg.	30.88
5	4	Waterland Financial Holding	30.7
6	24	Catcher Technology	29.73
7	22	King’s Town Bank	28.26
8	17	Highwealth Construction	26.24
9	27	Hua Nan Financial Holding	25.1
10	9	Jih Sun Financial Holding	24.29

Source: CCIS