Within the existing directions for public companies conducting private placements of securities, a public company that is making a profit could privately place its shares to its insiders or related persons at a price below the market price or the net worth of the company. Under the circumstances, the interests of existing shareholders of that company will be prejudiced.
In order to address these issues, Taiwan's financial watchdog, the Financial Supervisory Commission, proposed to amend the directions to impose conditions on private placements in order to protect the interests of existing shareholders. The amendments would include, among others:
1. Unless for the purpose of accommodating strategic investors, a public company that made a profit in the previous fiscal year and has no accumulated losses should conduct a public offering, instead of a private placement, to raise funds;
2. The reference price of a private placement should be the higher of (1) the average price of the one, three or five trading days prior to the price determination date, or (2) the average price of the 30 trading days prior to the price determination date;
3. If the placees are insiders or related persons of that public company, it should be approved by the board and be disclosed in the Notice of Shareholders Meeting; further, the placement price should not be lower than 90% of the reference price;
4. If a private placement is not in compliance with the amended directions, the privately placed stocks will not be allowed to trade on the stock exchange after the three-year lock-up period.
The amendments are expected to be implemented shortly.