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A small number of amendments to the Securities and Exchange Law (SEL) were enacted on 14 November 2001. The main points are as follows:
To give companies in traditional industries greater flexibility in raising funds, and to bring the SEL into line with the amended Company Law, which allows the issuance of no-par value stocks, the requirement for company directors and supervisors to state the par value of shares when reporting their shareholdings has been removed from SEL Article 25. The provision of SEL Article 27, which restricted the paid-up value per share of a company may only be altered once a year, has also been abolished, because shares may now be issued at a discount according to the amended Company Law.
To keep order in the securities market, the SEL requires trading in securities of listed compa-nies to be physically settled. However, trading in securities of unlisted public companies are merely a transaction between two parties, and does not affect the securities market or any other third parties. Such trading is no longer required to be effected on a physical settle-ment basis.
Amendments to Guidelines for Mergers of SITEs
To bring the rules for mergers of securities in-vestment trust enterprise (SITEs ) into line with the Financial Institutions Merger Law, on 28 November 2001 the Securities and Futures Commission (SFC) slightly amended the Guide-lines for Mergers of Securities Investment Trust Enterprise.
The Regulations Governing Securities Invest-ment Trust Funds prohibit a fund from holding the securities of a company with which it has a relationship of interest. If, due to the merger, a relationship of interest were created between a fund and an invested company, the fund must fully divest the shareholding within two years after the SITE merger. Also, a fund may not hold more than 10% of the total number of the shares or unsecured bonds in the invested company. If, due to the merger, the holding of a fund in such securities exceeds the 10% limit, the holding must be reduced to below 10% within two years after the SITE merger.
Private Placement
The recent Company Law amendment intro-duced private placement for corporate bonds. The main points about the private placement are as follows:
Under the old law, if a company wished to issue bonds, its average after-tax profit in the preceding three years must be at least 150% of the total annual interest due on the unsecured bonds to be issued, or 100%, in the case of secured bonds. Now, these terms do not apply to bonds offered for private placement. It is then up to bond subscribers to assess the company's profitability and to bear the risk.
Private placements of corporate bonds does not require prior regulatory approval, but need only to be reported to the SFC after issuing.
Companies that may offer bonds for private placement are not limited to listed or public companies. Non-public companies may also offer corporate bonds by private placement, and thus make it easier for companies to raise funds.
Where a company invites specific persons or entities to subscribe for bonds in a private placement, the number of such persons or en-tities must not exceed 35. However, sub-scribers who are financial institutions should not be included in the calculation.
