Mon, Jan 08, 2018 - Page 6 News List

EDITORIAL: Listing rules must be relaxed

This year is off to a positive start in terms of the stock market. Equities trading on both the Taiwan Stock Exchange (TWSE) and the over-the-counter Taipei Exchange last week moved even higher by 2.23 percent and 2.66 percent respectively.

This is because Taiwanese stocks have an average price-to-earnings ratio of about 16 and an average dividend yield of nearly 4 percent, which TWSE chairman Hsu Jan-yau (許璋瑤) said contributes to attracting buying interest and allows the market to continue last year’s upswing.

For the first time in history, the TAIEX on last year’s final trading day finished above 10,000 points, up 15.01 percent for the entire year. However, initial public offering (IPO) activity contracted significantly, with the number of companies debuting on the local bourses and the amount of funds raised both falling to the lowest levels in five years.

Clearly, there are issues behind what appears to be positive market momentum that deserve attention. There are also questions about whether the listing slowdown has to do with companies delaying their offerings until this year or because they chose to list elsewhere.

Financial Supervisory Commission Chairman Wellington Koo (顧立雄) in November last year said that the commission would consider allowing more flexibility for the nation’s biotechnology firms and technology start-ups to gain access to greater capital, while Hsu last week said that the TWSE would discuss with the Taipei Exchange how to relax listing requirements for companies.

So far, no concrete measures have been set out by government agencies, but Hsu’s suggestion to allow firms with sizable capitalization, large revenue and sound cash flows to seek an IPO in Taipei — regardless of whether their businesses are profitable — is a good start, because that is what Hong Kong and New York have been doing for years.

The listing requirements that have caused companies the most headaches are the rules on profitability: Companies must not only be profitable, but must also be increasingly profitable in successive years. Most importantly, they cannot have accumulated losses.

This is especially troublesome for small businesses, as well as emerging biotech, e-commerce and renewable energy firms, because it takes time for such companies to turn a profit after pouring money into research and marketing early on, and even if they start to generate a profit later, they are still likely to post aggregate losses.

For instance, the TWSE’s listing rules require companies to have been operating for a minimum of three years and not have any accumulated loss in the most recent fiscal year. In addition, companies have to meet any of the following criteria: an average rate of return of at least 6 percent in the past two years, a rate of return of at least 6 percent in at least one of the past two years or an average rate of return of at least 3 percent in the past five years.

President Tsai Ing-wen’s (蔡英文) administration is promoting the so-called “five plus two” innovative industries to reboot the economy. Many firms in these industries have yet to turn a profit, but have great potential for development.

Therefore, relaxing profitability regulations for companies seeking listing would help small businesses and emerging firms gain access to capital and allow them the time and resources to improve their competitiveness.

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