TSMC's financial unit to raise capital for forex hedging cost cut

Taipei, June 25 (CNA) Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, said on Wednesday that TSMC Global Ltd., its financial investment arm, has decided to increase its capital, in an effort to cut foreign exchange hedging costs as the Taiwan dollar appreciates against the U.S. dollar.

TSMC said a board meeting of TSMC Global, registered in the British Virgin Islands to manage the chipmaker's financial investments, approved a plan earlier in the day to make a rights issue to increase its capital by US$10 billion and lower forex hedging costs.

The meeting was held after TSMC's board of directors agreed in February to inject up to US$10 billion into TSMC Global.

Taiwan's exporters have come under pressure as the Taiwan dollar rapidly appreciated against the greenback recently. A stronger Taiwan dollar is expected to lead to foreign exchange losses, which will erode the profitability of Taiwanese exporters.

So far this year, the Taiwan dollar has risen against the U.S. dollar by more than 11.5 percent.

In May alone, the local currency soared NT$2.088, or nearly 7 percent, against the U.S. dollar amid market speculation that the U.S. had pressured Taiwan to allow currency appreciation as part of ongoing trade and tariff negotiations between the two sides. However, the central bank denied it came under pressure from Washington.

In June, the appreciation of the Taiwan dollar has continued, initially amid escalating tensions in the Middle East.

On Tuesday, the Taiwan dollar closed at NT$29.391 against the greenback, its highest in more than three years. The local currency appreciated 0.49 percent on Tuesday, making it the strongest currency in Asia as the U.S. Federal Reserve signaled a dovish tone on monetary policy, despite hopes that a ceasefire between Israel and Iran will hold.

C.C. Wei (魏哲家), Chairman of TSMC, said at an annual general meeting earlier this month that every 1 percent appreciation in the local currency reduces the company's operating margin -- the difference between sales and cost of goods sold and operating expenses -- by 0.4 percentage points.

The impact resulting from a higher Taiwan dollar has been large, Wei admitted, but added that TSMC will work to maintain its lead over its peers in technology development and sell products at reasonable prices.