Newsletter
OVERSEAS SECURITIES ISSU-ANCE CRITERIA AMENDED
Article 156, Paragraph 6 of the Company Law allows a company, after its incorporation, to is-sue new shares in consideration for its acquisi-tion of shares in another company, without being subject to the requirement to give pre-emptive subscription rights to employees and sharehold-ers, or to the requirement that the first issuance of shares after an increase in capital may not be less than one quarter of the total number of new shares. The Corporate Mergers and Acquisitions Law promulgated on 6 February 2002, also made it easier for companies to conduct mergers and acquisitions by giving shares.
To facilitate transnational mergers, acquisitions and share transfers by Taiwanese companies, and to take into account the Taiwan Stock Ex-change's Market Observation Post System, on 31 March 2003 the Securities and Futures Com-mission announced amendments to its Criteria Governing the Offering and Issuance of Over-seas Securities by Issuers. The main points of the amendments are as follows:
1.The SFC has based its new rules, regarding the purpose of this type of capital increase and new share issuance, on those applica-ble requirements for offering and issuance of securities for domestic mergers and ac-quisitions. The amended criteria explicitly define conditions under which the SFC may not approve a proposed issuance. These include:(1)where a previous new share issuance for the purposes of a merger or acqui-sition did not generate reasonable benefits (unless the date of actual completion of the previous issuance plan was more than three years before the filing date of the present applica-tion); and
(2)where a case involving a merger with or acquisition of a foreign company, fails to meet any of the following conditions: (a) the shares in the foreign company are shares newly issued by the foreign company, or are held as long-term in-vestments by the foreign company, or are previously issued shares in the for-eign company held by overseas Chi-nese or foreign nationals, and the pro-visions of Article 167, Paragraphs 3 and 4 of the Company Law concerning cross-holdings are not violated; (b) the shares, business, or assets to be ac-quired are not the subject of a pledge or restriction on sale or otherwise defec-tive or limited in title; and (c) the fi-nancial reports, for the most recent accounting period, of the company to be acquired have been audited and cer-tified by a certified public accountant, and the opinion given in the audit report is not qualified, or where a qualified opinion is given the certifying CPA has nonetheless given an unqualified opinion with respect to the balance sheet.
In the case of applications to issue new shares to sponsor an issuance of overseas depositary receipts to merge with or ac-quire a foreign company, the SFC exempts such applications from the restrictions based on unrectified delays in the execution of previous new share or bond issuance plans, and also from the limits on the amount of investments in mainland China. However, because the term "foreign com-pany" is not defined, further clarification is needed from the SFC as to whether this means that an ROC company can acquire shares in a PRC company, or merge with it, by sponsoring an issuance of overseas de-positary receipts.
2.When an issuer applies to issue new shares to sponsor an issuance of overseas deposi-tary receipts in order to acquire shares in a foreign company, or to merge with or ac-quire a foreign company, it must explicitly state certain related matters in the issuance plan, and must arrange for the underwriter to specifically evaluate the feasibility, ne-cessity and reasonableness of the issuance. After the approval, within two days after the date of signing the deposit agreement, it must enter related information into the in-formation disclosure website indicated by the SFC, and for the year following the completion of registration procedures, must arrange for the original lead under-writer to make quarterly follow-up evalua-tions and enter them into the information disclosure website indicated by the SFC.
3.When an issuer issues new shares to sponsor an issuance of overseas depositary receipts in order to acquire shares in a for-eign company, or to merge with or acquire a foreign company, this counts as a new share issuance, and as such is subject to the restriction that the depositary receipts may not be withdrawn or sold on domestic markets during the subsequent three months.
4.Three new schedules are added to the cri-teria, respectively listing the documents required when applying for permission to issue new shares to sponsor an issuance of overseas depositary receipts in order to merge with or acquire a foreign company; to acquire shares in a foreign company; or to purchase or demerge a foreign company in accordance with legislative provisions.