Newsletter
FINANCIAL DEBENTURE ISSU-ANCE REGULATIONS AMENDED
In January 2006, the Financial Supervisory Commission (FSC) amended the Regulations Governing the Issuance of Financial Debentures by Banks. The Regulations apply to financial institutions' issuances of financial debentures (including convertible financial debentures) both inside and outside Taiwan. The main points of the amendments are summarized as follows:
Changes to the conditions under which banks are barred from issuing financial debentures:
The old Regulations prohibited a bank from issuing financial debentures if it had accumu-lated losses in the preceding financial year. But the Financial Institutions Merger Act provides that after a bank sells off its non-performing loans to an asset management company, it may amortize its associated losses over five years. To reflect the unamortized part of its losses from NPL sales in a bank's financial situation, the FSC has amended this provision to require non-amortized losses from sold NPLs to be included in the calcula-tion of accumulated losses in the preceding year.
Under the old Regulations, a bank was not permitted to issue financial debentures if its overdue loans ratio in the previous quarter was above the average for all financial institutions. In view of the continued reduction in Tai-wanese banks' average overdue loans ratio, the FSC has now amended this restriction to pro-vide that a bank may not issue financial de-bentures if its monthly overdue loans ratio in any of the three preceding months was 5% or greater.
Enhanced disclosure of risk exposure:
Under new provisions, when a bank issues financial debentures, either the bank or that transaction must be rated by a credit rating agency approved by the FSC, and the credit rating and related information must be dis-closed to investors. If the bank engages an underwriter to sell the debentures, its agree-ment with the underwriter must expressly re-quire the underwriter to disclose risk infor-mation to investors.
Rules for private placement of financial de-bentures conferring equity rights:
Under new provisions, when a bank privately places an issuance of financial debentures that confer equity rights, in addition to complying with the relevant provisions of the Securities and Exchange Act, it must also file a report with the regulatory authority stating the issu-ance conditions for the private placement and the eligibility conditions for offerees at least seven business days prior to the issuance date. According to verbal explanations by an FSC official, this provision will apply only to pri-vate placements within Taiwan.