The Financial Supervisory Commission’s (FSC) move to strengthen regulations on financially healthy listed companies’ fundraising through private placements drew concerns from industry representatives during a public hearing yesterday.
In order to prevent some listed companies’ major shareholders from profiting from stock price discrepancies through private placements, the commission has drawn up more stringent fundraising rules, which are expected to be announced in two weeks.
Presiding over the public hearing, commission vice chairman Wu Tang-chieh (吳當傑) said that profitable firms would be restrained from raising capital via private placements unless they solicit “strategic investors.” By strategic investors, the commission is referring to strategic alliances among upper-stream, middle-stream and downstream companies, or the introduction of new techniques that would help develop a company’s businesses.
However, this narrow definition of strategic investors drew concerns from some companies, which argued that it would only limit fundraising choices for listed companies, urging the government to relax the restriction.
“We support the government’s efforts to establish a sound market mechanism, but it seems to bound the fundraising options for financially healthy companies to some extent,” James Nien (粘傑評), executive director at Morgan Stanley, Taiwan, said during the hearing.
“On whether strategic investors must be from an upper-stream or downstream industry, many private equity funds can help consolidate corporate management and improve the value of a company by being investors in the market,” Nien said.
Polaris Securities Co (寶來證券) vice chairman Huang Chi-yuan (黃齊元) said an overly strict definition of strategic investors might close doors to potential investors, which is against the government’s recent efforts to attract global investment.
“Technically speaking, strategic investors cannot be defined,” Huang said. “If the definition is not good enough, it would harm the disadvantaged groups and that is not what we are happy to see.”
The government should not place restrictions on strategic investors, but instead, it should strike a balance between financial supervision and investment promotion, attracting more global funds to invest in Taiwan, he said. The FSC’s statistics show that there were a total of 500 companies conducting fundraising through private placements between October 2005 and June last year, worth NT$381.4 billion (US$11.9 billion), with 65 percent of them selling securities to their major shareholders. Wu said that the commission’s fundraising regulations didn’t reject strategic investors, noting that the commission is open to suggestions for more tangible definitions of the term.
“We still welcome international investors,” he added.
Apart from requesting listed companies to raise capital via public offerings, the commission said that people from within a company couldn’t participate in private placements unless they received a green light from the board with their information made public.
The share prices in private placements for shareholders should not also be lower than 90 percent of the prices set for investors from outside the company, the FSC said.
However, some company representatives were hoping that the discount could be larger for shareholders, so that they would be more willing to invest in their companies.
“When a company is in need of capital, support from shareholders is necessary for the company to continue to operate,” a representative from a local company said. “After all, there is a three-year lock-up period for investors for private placements.”
Based on the principle of safeguarding the rights of investors, the FSC said the new rules would immediately apply to all fundraising deals in the nation after being announced, regardless of whether the plans have passed shareholders’ meetings or not.
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