Traders and investors in financial markets around the world pay attention to every move that governments make regarding financial regulations. However, what they are listening for, and what they will take into consideration when making their investments, is how a government delivers its message — does it use friendly words or is its tone harsh?
The Financial Supervisory Commission needs to be cautious about how it communicates its measures to strengthen regulations on listed companies’ fundraising practices through private placements and to place limitations on private equity funds. The moves will likely backfire if the commission does not deliver its message in the appropriate way.
The commission said on Friday, after a public hearing, that the measures were aimed at safeguarding the public interest, after it discovered that some listed companies’ major shareholders were profiting from price discrepancies that arise during private placements, while others were involved in a conflict of interest by participating in them.
Based on a statement issued by the commission’s Securities and Futures Bureau, the regulator said it would be better for financially strong, listed companies to raise funds via public offerings rather than private placements. The commission said companies could still sell shares to strategic investors via private placements, provided the firms can prove such strategic investors are vital to their long-term development.
Just one week ago, the commission’s Banking Bureau also held a meeting to discuss the appropriateness of financial firms raising capital via private placements or private equity funds. At that meeting, the commission said the participants agreed that banks and financial holding companies would resort to private placements only when they are experiencing financial and operational difficulties, and are in urgent need of capital injection.
The commission’s attempt to increase oversight of private placements and private equity funds is the correct move. It aims to manage and control the weaknesses involved with such deals, and eventually lower the systemic risk in financial markets. This would immunize the economy from a catastrophic collapse similar to the US subprime mortgage crisis.
It is one thing for the commission to tell people that it is concerned about the potential impact of these deals, and it is another to send the message that Taiwan does not welcome private placements and private equity funds, which are viewed as normal, market-based fundraising alternatives elsewhere.
So far, the message being received from the commission is that private placements involve uncertainties related to a lack of transparency and the qualifications of major shareholders, while selling to private equity funds is not desirable because it brings leveraged risk and potential financial instability.
However, several key questions have not been addressed by the commission: First, don’t private placements offer companies access to more capital with a relatively lower cost than a public offering? Second, should we view private equity funds as corporate vultures and neglect the fact that they can have a positive impact by introducing a new business model and better corporate governance? Finally, and most importantly, who should decide companies’ favored strategic partners and advisers — the companies themselves or the regulators?
Private placements and private equity funds do have their shortcomings, but so do public offerings and other means of fundraising. The point is not whether these alternatives are ill-designed, but how the commission can effectively detect if any parties are engaging in illegal behavior in such deals.
The commission says it has no intention of creating the impression that Taiwan does not welcome foreign investment, but it should be sensitive to the concerns of foreign investors before it introduces the new guidelines in two weeks.
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
Former president Ma Ying-jeou’s (馬英九) trip to China provides a pertinent reminder of why Taiwanese protested so vociferously against attempts to force through the cross-strait service trade agreement in 2014 and why, since Ma’s presidential election win in 2012, they have not voted in another Chinese Nationalist Party (KMT) candidate. While the nation narrowly avoided tragedy — the treaty would have put Taiwan on the path toward the demobilization of its democracy, which Courtney Donovan Smith wrote about in the Taipei Times in “With the Sunflower movement Taiwan dodged a bullet” — Ma’s political swansong in China, which included fawning dithyrambs