Standard & Poor's Acquires Majority Stake in TRC

Standard & Poor's, the leading global provider of independent investment research, ratings and indices, announced a significant milestone on Sept. 27 in its business expansion in Asia, with the signing of an agreement to acquire a majority stake in Taipei-based Taiwan Ratings Corporation (TRC). The agreement indicates that Standard & Poor's will obtain an additional 1% stake in TRC from local shareholders, possibly from Taiwan Securities Central Depository Co., to yield a total shareholding of 51%.

Currently Standard & Poor's and the Taiwan Stock Exchange Corp. (TSEC) each has four seats on TRC's board of directors. In the near future, TRC will add a seat on its board of directors for Standard & Poor's, meaning that foreign capital will hold five out of the nine seats on TRC's board.

Wu Nai-jen, chairman of TSEC, comments that Taiwan is an entity too small to develop its own credit-rating business, and therefore has to rely on the technical support of the world's top-three agencies, which include Standard & Poor's, Fitch Ratings, and Moody's Investors Service. He cites other smaller countries like Japan, for instance, which also failed to develop its own localized credit rating service several years ago.

Wu complains that Standard & Poor's was reluctant to let TRC access its international data bank when it did not have a controlling stake in TRC. "But as Standard & Poor's now has won a controlling stake in TRC," Wu says, "it will introduce advanced financial products, technologies and resources to help develop the domestic financial market in a healthy and sound way."

TRC was established on May 29, 1997 as a result of the Ministry of Finance's efforts to introduce an independent credit-rating organization to Taiwan's financial market. TRC is Taiwan's first credit-rating service, providing independent and objective assessments of the abilities of banks, bill financing companies, securities firms, insurance companies, corporations, infrastructure projects, and bond funds to meet their financial obligations.

At present, domestic shareholders in TRC include TSEC, Taiwan Securities Central Depository Co., Ltd., Joint Credit Information Center Co., China Credit Information Service Co., Ltd., Taiwan Futures Exchange Corp., and Taiwan Certificate Authority Corp.

After Fitch and Moody's entered Taiwan in 2003, TRC has seen its market share slide to 65%, from its past high of 100%. Currently TRC, with paid-in capital of NT$200 million (US$6.06 million at US$1:NT$33), has approximately 220 clients.

Standard & Poor's, a unit of the McGraw-Hill Group, is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, and data. With more than 6,000 employees located in 20 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investments and financial decisions.

"This is a major step forward in Standard & Poor's strategy for growth in Asia," says Tom Schiller, Standard & Poor's executive managing director for the Asia-Pacific region. "Our partnership with TRC combines the global capabilities and reputation of Standard & Poor's with the excellent local knowledge and skills of TRC. Together, the services we provide will support the investment, risk management and financing needs of our clients within Taiwan and around the globe. We hope it will further enhance the transparency and efficiency of the Taiwan capital market for investors, and facilitate new opportunities for capital raising for Taiwanese issuers."

Standard & Poor's took a 50% stake in TRC when it entered Taiwan eight years ago as part of its strategy to better connect local markets with global markets. The completion of its shift to majority ownership will take place sometime in October, with the purchase of the additional 1% stake from local shareholders. The integration of TRC will further enhance Standard & Poor's expansion into the large, rapidly growing domestic Taiwanese credit ratings market, and provide TRC with access to new products and services for its local clients.

TRC and Standard & Poor's have already forged a strong relationship, having collaborated on a number of projects in the Taiwan market, including the recently released Taiwan Top-50 credit ratings report. Standard & Poor's and TRC's clients in Taiwan include many top-tier investment banks, financial intermediaries and asset managers.

Eddy Yang, TRC's president, says "Becoming a Standard & Poor's company will enable TRC to build upon its market position in Taiwan's dynamic and competitive financial markets. By leveraging Standard & Poor's global analytical experience, capabilities and brand, we will continue to grow our business and better meet the changing needs of our customers."

The acquisition of TRC is the latest in a series of significant investments this year by Standard & Poor's in Asia. In June, Standard & Poor's completed its acquisition of a majority shareholding in CRISIL, India's largest rating agency. In the same month, it established a presence in Kuala Lumpur after winning a contract from the Malaysian stock exchange to provide equity research on 300 locally listed stocks. In February 2005, Standard & Poor's announced an affiliation with Rating Agency Malaysia, the country's leading rating agency. At present, Standard & Poor's has more than 2,200 employees in eight countries in the Asia-Pacific region, and alliances with nine domestic rating agencies, stock exchanges and other financial institutions in the area.