A spate of capital reductions by listed companies this year has prompted ruling Chinese Nationalist Party (KMT) lawmakers to introduce a draft bill that would ban firms from raising new funds via private placement within six months of cutting their capital.
If passed into law, the six-month ban will apply to all firms trading on the mainboard, the Taiwan Stock Exchange, and the over-the-counter GRETAI Securities Market.
KMT legislators Ting Shou-chung (丁守中) and Lo Shu-lei (羅淑蕾), who jointly sponsored the bill, told a hearing yesterday that the proposed amendment was designed to prevent major shareholders from using capital restructuring to purge enemies within the firms and sacrificing the rights and interests of small shareholders.
As of May 21 this year, 82 listed companies had announced plans to cut capital by an aggregate NT$300 billion (US$9.79 billion) to strengthen their financial health, the draft bill said.
Some firms then embarked on a capital increase by offering shares at a lower price to affiliates or investors via private placements, it said.
“The capital restructuring mechanism is designed to help firms strengthen corporate finances rather than provide a platform to carry out infighting,” Lo said. “A legal provision is needed to stem unfair practices as major shareholders have information unavailable to small shareholders.”
LCD panel maker Chunghwa Picture Tubes Ltd (華映) plans to shrink its capital by NT$99.8 billion, or 60 percent, while digital still camera maker Tekom Technologies Inc (智基科技) intends to reduce its capital by 97.03 percent, the draft bill said, without elaborating.
Small shareholders will suffer if these moves go through, it said.
Aware that capital reduction is sometimes essential for firms to improve their financial health, the bill proposes granting the Financial Supervisory Commission the power to spare companies from the six-month ban on a need basis.
The commission confirmed the need to regulate private placement and promised to conduct a thorough study of the issue.
The bill was forwarded to the legislature’s Finance Committee for review yesterday, but lawmakers said it was unlikely to be approved in the near future.
“The issue is more complicated than a six-month ban can cope with,” Lo said. “More revisions may be necessary to make the bill adequate and effective in protecting small shareholders.”
The current legislative session, due to end next month, is preoccupied with reviewing the central government’s fiscal budget.
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