Newsletter
COMPANIES MAY ISSUE OVER-SEAS BONDS WITH WARRANTS
On 9 April 2001 the Securities and Futures Commission (SFC) amended its Guidelines for Handling the Offering and Issuance of Overseas Securities by Issuers. The amendment intro-duces regulations covering issuance of overseas corporate bonds with warrants in accordance with Article 28 of the Securities Exchange Law. It allows TSE-listed or OTC-traded companies to apply to issue overseas bonds with warrants for its own shares, and non-listed or traded compa-nies to issue overseas bonds with warrants for other company's shares owned by the issuer. The amendments are in response to the needs for di-versified funding mechanism and sources.
A warrant is a type of financial derivatives. When issued with a corporate bond, it gives the bondholder the right to subscribe for a certain number of shares in the issuing company within a specified period and at a specified price. Its difference from a convertible bond lies on its separability. Unlike convertible bonds where the conversion right is attached to the bondholder for the life of the underlying bond, the warrant in a bond with warrant can be detached and trans-ferred to another person without transferring the underlying bond simultaneously. For issuing companies, issuance of bonds with warrants creates more incentives for subscriptions.
The amendment also adds a new Article 21-1, providing for the matters to be contained in an offering plan when an issuer applies for issuance of overseas bonds with warrants. Such matters include subscription conditions and procedure, issuance method, and so forth. Article 21-1 also requires that issuance of overseas bonds with warrants apply international practice as well as those provisions of the guidelines for Handling Offering and Issuance of Domestic Securities to the extent applicable.
Before an issuing company may issue overseas bonds with warrants, its articles of incorporation must state the number of shares available for subscription. Issuance is not subject to the re-strictions of Company Law Articles 269 (re-strictions on issuing preference shares), 270 (re-strictions on publicly issuing new shares) and 278 (restrictions on increasing capital). The same as the regulations that are applicable to overseas issuance of convertible bonds, the amendment also requires that if an issuer, after its offering plan has been approved, issues the bonds with warrants not in accordance with the terms and conditions as stated in the application and such deviation is not approved by SFC, SFC may cancel or revoke its approval. In addition, provisions are introduced concerning the pro-cedure of how bondholders may redeem the depositary receipts acquired by exercising their subscription rights under the warrants.
An issuing company must, within two days after the pricing day, make public notice and report to SFC, the subscription plan and other relevant matters and, within ten days after the issuance day, file copies of depositary agreement and custody agreement. Forms related to the appli-cation and report have also been amended.