The Financial Supervisory Commission (FSC) is to tighten its review of listed companies’ capital reduction plans after dozens of firms announced reductions in the first quarter, the commission said yesterday.
The commission requires certified public accountants to justify the necessity of a capital reduction and its effects on a company’s financial structure if it plans to cut capital by more than 50 percent.
Given a rise in the number of local companies that have applied to reduce capital, the commission has asked the Securities and Futures Investors Protection Center to help review the plans on a case-by-case basis, Securities and Futures Bureau Director-General Sam Chang (張振山) told a meeting of the legislature’s Finance Committee in Taipei yesterday.
Photo: Tu Chien-jung, Taipei Times
The FSC expects to announce the results of its review in two weeks, Chang said.
The change comes after Chinese Nationalist Party (KMT) Legislator Alex Fai (費鴻泰) asked the commission whether it was suspicious that more companies announced capital reductions in the first quarter.
Eighteen listed firms announced capital reductions totaling NT$57.48 billion (US$1.98 billion) as of the end of last month, nearly as high as for the whole of 2018, Fai said.
Unlike companies’ previous capital reductions, which mostly correlated with rising share prices, the announcements in the first quarter constrained share prices, as in most cases the companies’ share prices fell the next day, Fai added.
Rumors had circulated that some companies aimed to reduce capital to dilute stakes held by minor shareholders, a move that would help certain players gain boardroom control, he said.
Such moves could be possible, and the commission would keep a lookout for this behavior in its review, Chang said.
A capital reduction is just one tool that companies can use to adjust their capital structure, and does not necessarily mean anything more, Chang said, adding that whether such an announcement results in a company’s share price rising or falling depends on how investors interpret the move.
The commission bars companies from conducting capital injections for one year following a capital reduction, Chang said.
Some lawmakers had recommended that the FSC should lengthen the period to three years, but it might be inappropriate as corporate management requires flexibility, Chang said.
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