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New rules would place restrictions on private placements in Taiwan
2010/07/30 19:21:06 |
Taipei, July 30 (CNA) The Financial Supervisory Commission is working on a new set of guidelines to regulate widespread private placements used by publicly listed domestic companies to raise funds.
Financial officials said the guidelines, being drafted to cut down on abuses in Taiwan's private placement market, are expected to be in place within two weeks at the earliest.
A private placement refers to sales of shares directly to a small group of private investors. Companies in Taiwan must notify the Financial Supervisory Commission after they had launched a private placement, but the process is not closely regulated.
One of the potential new restrictions, and a major source of contention at a public hearing on the guidelines Friday, would be that public companies that posted a profit in the most recent fiscal year and do not have accumulated losses will not be allowed to raise funds through private placement.
The only exception would be using a private placement to attract strategic investors, in which case the company has to prove the investors are vital to the company's development. They could be key suppliers, customers or technology partners, for example.
Another restriction would bar existing shareholders from buying stakes in the company through a private placement unless it has been thoroughly discussed by the board of directors and disclosed to stockholders, and the share price agreed upon is reasonable.
A "reasonable price" is defined as the higher of either the one-month average of a company's share price or the "reference price" -- the share price on either the day before, the third business day or fifth business day before the price is set.
For the existing shareholders, they have to buy the stocks at 90 percent or more of that price if they want to invest through private placement.
The existing system has been criticized for allegedly offering an opportunity to shrewd major shareholders to sell a portion of their holdings and then repurchase shares offered in private placements at a discount.
According to Financial Supervisory Commission statistics, there were 500 private placements in the country between October 2005 and June 2010, raising NT$381.4 billion (US$11.92 billion) in funds.
About 30 percent were launched by companies that posted profits the previous year, and 65 percent of the investors were existing shareholders, of whom 26 percent sold the shares within three months after making the investment.
In 27 percent of the cases, shares sold at less than 80 percent of the company's common share value at the time. (By Chen Yun-hsuan and Maubo Chang) enditem/ls
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