Highwealth stock falls on capital reduction plan
Highwealth Construction fell 6.78 percent on the Taiwan Stock Exchange on March 22 after the developer unexpectedly announced plans to reduce capital March 21.
The firm closed at NT$53.6 ($1.812) on turnover of NT$15.36 million. It had at one point fallen by its 7-percent daily limit to NT$53.5.
The weighted index, meanwhile, closed up 78 points or 0.97 percent on March 21 at 8,059.94. Turnover totaled NT$94.50 billion during the trading session.
On March 22, the company's board decided to reduce capital by 20 percent and return some of the cash it holds to investors. At the same time, the board announced it would distribute cash dividends of NT$3 a share. Together, investors of Highwealth will each get NT$5 a share.
Yet investors on March 22 apparently showed their dissatisfaction with Highwealth's move by dumping their holdings in the company's stock, in the process sending the shares into a tailspin.
According to analysts, the selling spree also reflected investors' worries that Highwealth will now take a more conservative approach in the midst of downbeat sentiment in Taiwan's real estate industry.
By reducing capital, the company is seemingly telling investors that it won't continue to concentrate spending on land acquisition and maintenance, analysts said.
Highwealth Chairman Cheng Chin-tien dropped a bombshell before the Chinese New Year break that the company will reduce pre-construction property prices by 25 percent. The move drew severe criticism from its peers in the industry, including Chao Teng-hsiung, chairman of Farglory.
There are two main motivations behind a firm's move to reduce capital. One is to reduce the cash the company has on hand by returning some of it to investors. The other, which is often utilized by financially troubled companies, is to dilute a firm's outstanding shares so its earnings per share can hold a more favorable outlook.
