Newsletter
CONDITIONS RELAXED FOR OVERSEAS ENTERPRISES' INVESTMENTS IN TAIWAN
Since early 2008 the Executive Yuan (EY) has announced a number of policy initiatives designed to make Taiwan's capital markets more international by encouraging overseas enterprises, including the overseas subsidiaries and holding companies of Taiwanese-invested businesses, to raise capital in Taiwan and to have their securities listed on the Taiwan Stock Exchange (TSE) or the GreTai Securities Market (GTSM, also called "OTC"). In March the EY approved the "1-2-3 Program" to promote the listing of foreign enterprises in Taiwan; in June it approved a plan to liberalize cross-strait securities investments; and in July it approved a plan for the relaxation of restrictions on the Taiwan listing of overseas enterprises and for moderate liberalization of Mainland Chinese investments in Taiwanese securities markets. The EY has also put forward a series of legislative amendments in support of these initiatives. In line with these legislative changes, the GTSM and the Taiwan Stock Exchange Corporation (TSEC) have amended their review criteria and related procedures for the OTC and TSE listing of foreign securities. The main content of the liberalization measures is as follows:
- Relaxed conditions for overseas enterprises' primary listing in Taiwan
Under the previous rules of the Financial Supervisory Commission (FSC) and the GTSM, only Taiwanese public-issuing companies could apply for registration on the GTSM's Emerging Stocks Market (ESM) and for subsequent listing on TSE or GTSM. Thus companies incorporated outside Taiwan could not apply for ESM registration or for primary listing in Taiwan.
However, the FSC has amended the relevant provisions of the Criteria Governing the Offering and Issuance of Securities by Foreign Securities Issuers, and the GTSM has amended its Criteria Governing Review of Emerging Stocks Traded on the Over-the-Counter Market, to allow companies incorporated outside Taiwan that are not listed on other securities markets, and are in compliance with the relevant provisions of the Act Governing Relations between the Peoples of the Taiwan Area and the Mainland Area, to apply to the GTSM for their securities to be traded on the ESM in the same way as domestic enterprises, if they are recommended in writing by two or more qualified securities firms (of which one must be designated as the lead firm). After an overseas enterprise's securities have been traded on the ESM for six months, it can apply for listing on TSE or GTSM if it meets the relevant conditions.
The EY is currently also preparing amendments to the Act Governing Relations between the Peoples of the Taiwan Area and the Mainland Area, with the intention that in principle any company incorporated outside mainland China will be able to apply for listing on TSE or GTSM in Taiwan. The EY does not plan to bar mainland-invested companies from such listing, or to place any restriction on the proportion of shares held by mainland investors.
- Secondary listing of HK-listed enterprises allowed
In the past, the Hong Kong Stock Exchange (HKEx) was not among the foreign securities exchanges recognized by Taiwan's securities regulator, so that enterprises listed on the HKEx were not eligible for TSE or GTSM secondary listing in Taiwan. However, on 27 June 2008 the FSC, the TSEC and GTSM announced amendments to various laws, to include the HKEx as one of the foreign securities exchanges approved by the FSC. Accordingly, HKEx-listed enterprises are now able to apply for secondary TSE or OTC listing in Taiwan.
- Restrictions lifted on use of funds raised in Taiwan by overseas enterprises
The previous legislation permitted overseas enterprises listed on FSC-approved foreign securities exchanges to apply for secondary TSE listing in Taiwan. But in fact to date only five overseas enterprises have successfully achieved listing in Taiwan based on the issuance of TDRs. This is mainly because the following restrictions have dampened overseas enterprises' enthusiasm for seeking Taiwan listing: (1) an overseas enterprise was barred from listing in Taiwan if its investments in Mainland China exceeded a certain proportion of its net worth; and (2) funds raised on Taiwanese securities markets could not be used for direct or indirect investments in Mainland China.
However, on 31 July 2008 the FSC amended Articles 7 and 9 of the Criteria Governing the Offering and Issuance of Securities by Foreign Securities Issuers, to abolish the above restrictions. Accordingly, the proceeds of an enterprise's capital-raising activities in Taiwan can henceforth be invested in Mainland China if so desired. This change should increase overseas enterprises' willingness to seek secondary listing in Taiwan.
- Reciprocal listing of Taiwan and HK ETFs to be allowed
With regard to fund investments, the FSC intends to initially allow exchange-traded funds (a relatively sound and conservative investment product) offered by Taiwanese enterprises to be listed in Hong Kong, and on the basis of reciprocity, to allow Hong Kong ETFs to be listed and traded in Taiwan. This move is intended to enable Mainland Chinese investors to indirectly invest in Taiwanese securities via Hong Kong. The relevant legislative amendments have been approved by the FSC but pending promulgation.
- Fund-type FINIs need not declare non-mainland origin of funds
In compliance with FSC directives, on 7 July 2008 the TSEC announced amendments to the forms appended to its Directions for Registration Processing for Offshore Overseas Chinese and Foreign Investors to Make Investments in ROC Securities or Engage in Domestic Futures Trading, so that when a foreign institutional investor (FINI) organized as a fund wishes to invest in Taiwanese securities and futures markets, it is no longer required to provide a declaration that its funds do not originate from Mainland China. However, a non-fund FINI investing in Taiwanese securities and futures markets is still required to declare at the time of registration that the funds it intends to remit into Taiwan for investment do not originate from Mainland China.
- Mainland Chinese QDIIs to be treated as foreign investors
Mainland China currently allows only Qualified Domestic Institutional Investors (QDIIs) to invest in offshore securities, and limits a QDII's combined investments in the securities and assets of a single country or territory to a maximum of 10% of the QDII's net worth if the country or territory concerned has signed a memorandum of understanding (MOU) on regulatory cooperation with Mainland China, or 3% if the country or territory has not signed such an MOU. The Executive Yuan recently decided to allow Mainland Chinese QDIIs to invest in securities and futures in Taiwan. The relevant legislation is to be amended to provide a regulatory framework similar to the current rules for foreign investors.