AU Optronics Corp (友達光電), the world's third-largest maker of flat-panel displays, has asked banks for a US$300 million loan to expand in China, bankers familiar with the deal said.

The funds would be used for capital expenditure at its two manufacturing plants managed by subsidiaries AU Optronics (Xiamen) Corp and AU Optronics (Suzhou) Corp, the bankers said. Lenders have to submit proposals by Feb. 10 to the company, which didn't indicate the tenor it wants.

AU Optronics follows its smaller rival Chi Mei Optoelectronics Corp (奇美電子) in getting loans to increase manufacturing capacity in China for flat-panel displays that are used in computers and televisions. The companies are investing in the most labor-intensive part of production in China to cuts costs and to be closer to their main customers.

"AU Optronics' plants in China handle the last part of the production before shipment," said Kevin Chang (張崇人), an analyst with Fitch Ratings in an interview yesterday. "This allows the company to deliver the goods to their customers in China faster."

Taipei-based Chang estimates about 30 to 35 percent of AU Optronics' total production is for customers in China.

Taiwanese businesses invested US$4.19 billion in the period ended September last year, making China their favorite investment destination, according to the Ministry of Economic Affairs.

Taiwan's investment in China is about 70 percent of the total overseas investment. Since 1991, Taiwanese firms have invested US$45.44 billion, according to the ministry.

AU Optronics borrowed NT$42.25 billion (US$1.3 billion) in loans last year at interest margins between 60 and 80 basis points more than the average rate for new commercial papers, a benchmark lending rate.

A commercial paper is an unsecured short-term promise to repay principal on a specific future date, with maturities usually ranging from two to 270 days.

AU Optronics is expected to ship as much as 8 million panels this year, double from last year's 4 million units, the Economic Daily News reported on Jan 23.

Chi Mei, Taiwan's second-largest maker of flat-panel displays, hired Banc of America Securities Asia Ltd, Calyon and HSBC Holdings Plc to arrange a US$180 million loan.

They are offering a fee of between 7.5 to 18.75 basis points in addition to an interest margin of 0.62 percentage point more than the London interbank offered rate for the five-year loan. A basis point is 0.01 percentage point. Lenders have to respond by March 10.