1. Introduction
1.2 Overview of listings on Taipei Exchange
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Taipei Exchange also operates as a bond market. It established the regulatory framework for the listing and trading of a variety of bonds, including the government bonds, financial bonds, international bonds (i.e. bonds issued by foreign issuers and denominated in foreign currency), corporate bonds and convertible bonds. The government bonds and international bonds are the largest and second largest sectors by issuance volumes and by outstanding values, respectively. The international bond market was grown rapidly since 2013 because of the regulation relaxation which has significantly eased the burden of issuance and placement of shares and subsequently encouraged more listings on Taipei Exchange.
To sum up, Taipei Exchange is an exchange with comprehensive function. It offers alternative ways for companies raising capital from the public and provides a variety of products for investors, such as stocks, ETFs, TDRs, (calls and puts) warrants, bonds and open-ended funds and golds.
The discussion in this report focuses on the IPO function and aims to analyze the challenges facing Taipei Exchange, despite of the wide range of products and diversified services provided by Taipei Exchange.
1.2 Overview of listings on Taipei Exchange
1.2.1 Listing RequirementsThe requirements for listing on the Main Board of Taipei Exchange vary for different types of the applicant companies, the domestic companies, the foreign companies and the Technology-based Enterprises. The Main Board listing requirements are as follows:
1.2.1.1 For the domestic companies:
I. Required advisory/Trading period
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The issuer's stock should be traded on the ESB for more than 6 months.
II. Duration of Corporate Existence
The issuer shall have been incorporated and registered in accordance with domestic or foreign laws for at least 2 completed fiscal years.
III. Company Size
The paid-in capital should be more than NT$50,000,000 dollars.
IV. Profitability
The ratio of income before tax to paid-in capital should meet one of the following requirements, and the income before tax of the most recent year should not be less than NT$4,000,000:
i. For the most recent fiscal year: the ratio shall be more than 4%, and there shall be no accumulated deficits.
ii. For the last 2 fiscal years: the ratio shall be more than 3% in each year; or an average of 3% over the 2 years and the ratio for the more recent year is better.
V. Recommending Securities Firms
The issuer should receive written recommendations from 2 or more Recommending Securities Firms (RSFs). One of which is designated as the lead RSF.
VI. Lockup of the shares
The directors, supervisors, and the shareholders holding 10% or more of the issued shares of the issuer should deposit all their shareholdings in central custody. One half
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of those shares deposited in the central custody may be withdrawn after the lapse of 6 months period starting the listing date; the remaining shares may be withdrawn after the lapse of 1-year period starting the listing date thereof.
VII. Dispersion of shareholders
Excluding company insiders, the number of registered shareholders should be at least 300 people/entities, and the total number of shares they hold should be 20% or greater of the total issued shares.
VIII. Compensation committee
The issuer should have a compensation committee in place.
1.2.1.2 For the foreign companies:
The requirements for the foreign companies are almost the same as those for the domestic companies, except for the standards of required advisory/trading period and the company size are different.
The foreign issuers may choose either one of the following steps to apply for Main Board Listing, (i) to have their stocks being traded on the ESB for at least 6 months; or (ii) to have the Recommending Securities Firms conduct listing advisory continuously for at least 6 months. If the foreign company adopts the way other than registration on the ESB, it should contract with the lead RSF to file the advisory progress and submit the "Advisory Progress Checklist of the Main Board Listing" to Taipei Exchange every month. Besides, three months before applying for the Main Board listing, the lead RSF should summit the
"Financial and Operational Material Event Checklist" to Taipei Exchange. After submitting the "Advisory Progress Checklist of the Main Board Listing" or the "Financial and
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Operational Material Event Checklist" on a monthly basis for 6 months, the foreign issuer shall apply for the Main Board listing.
As to the company size, the foreign registrants are required to have total shareholders’ equity audited by a CPA at no less than NT$100,000,000 for the most recent year.
Besides that, the foreign registrants should designate at least a litigious and non-litigious agent who shall serve as the registrants' responsible person under the Securities and Exchange Act in the ROC. They are also required to engage a lead RSF from the listing date to the end of the 2 subsequent fiscal years to assist it in compliance with ROC securities laws and related regulations.
1.2.1.3 For the Technology-based enterprises:
Considering the emerging companies in the early stages with technology capabilities and potentials are not capable of meeting the listing requirements of Main Board, Taipei Exchange offers another channel for such companies, called the Technology-based enterprises listing, based on the listing rules amended in 2000. Before applying to Taipei Exchange, the company needs to apply for an assessment opinion which recognizes it as a Technology-based Enterprise with successful and marketable products or high-end technologies. The assessment opinion shall be provided by the Ministry of Economic Affairs or other Government institutions engaged by Taipei Exchange. With this opinion, the Technology-based Enterprises are not required to meet the standards of profitability and duration of corporate existence. The assessment opinion is valid for 1 year since the release date. There are additional requirements for the Technology-based Enterprises in the concerns with protection of the public investors. The book value of the applicant companies should be no less than 2/3 of the paid-in capital while applying for listing. As to the dispersion of
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shareholders, excluding company insiders, the number of registered shareholders is required to be at least 300 people/entities, and the total number of shares they hold is required to be 20% or greater of the total issued shares, or no less than 10,000,000 shares. Moreover, the requirements of lockup of the shares are stricter for the Technology-based Enterprises. The directors, supervisors, CEO, personnel in charge of R&D, shareholders holding 5% or more of the total issued shares, and the shareholders providing patent rights or technical know-how as capital contribution, holding a position in the company, and holding 0.5% or more of shares issued or at least 100,000 shares are required to deposit all their shareholdings in the central custody. One half of those shares deposited in the central custody cannot be withdrawn until after the lapse of one year starting the date of listing; the remaining shares cannot be withdrawn until after the lapse of 2 years period starting the listing date thereof.
1.2.2 Listing Procedures
The listing procedures for the Main Board start from the applicant companies submitting of listing application and related documents to Taipei Exchange. Once receiving the application, Taipei Exchange commences the document reviews to check whether the applicants meet all the listing requirements and conducts on-site examination as well to verify the authenticity.
Then Taipei Exchange holds a Securities Review Committee, formed by internal and external experts from the industry to determine whether the applicant can get the approval or not. After the approval by the Securities Review Committee, the new listing should be ratified by Taipei Exchange's Board of Directors. The procedures from application to Securities Review Committee discussion take around 6 weeks in principle3. It the pre-listing period on the ESB (or, for foreign companies, the advisory progress) and time for public
3 To accelerate the examination procedures, Taipei Exchange has shortened the process from 2 months to 6 weeks, effective to the listing application since April 20, 2018.
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company to schedule an IPO plan in general.1.2.3 Components of listed companies
As of the end of March 2018, there are 752 listed companies on the Main Board of Taipei Exchange. The total paid-in capital and the market capitalization of all the listed companies were NT$ 727,837 million and NT$ 3.4 trillion, respectively. Since the establishment of Taipei Exchange Main Board, the accumulated listed companies were 1,260 companies, of which 324 companies had transferred to the Main Board of Taiwan Stock Exchange and 184 companies had delisted from Taipei Exchange for some other reasons (such as being merged or acquired, executing business-reformation, and encountering financial difficulty or fraud).
Table 1. Overview of the listed companies as of end of March, 2018 Number of listed
Data source: Website of Taipei Exchange
＊Turnover ratio = Total Trading Value in Jan.-March 2018 / Average Market Value of Jan.1st and March 31st, 2018.
＊P/E ratio = stock price of per share / EPS
The following Tables 2, 3 and 4 display the breakdown of the listed companies categorized by industry sectors, capital scales, and the market capitalization.
Table2. Number and proportion of the listed companies categorized by industry sectors, as of end of March, 2018
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＊ ”Others” sums up the Traditional business, IT Services, Cultural and Creative, Distribution, E-commerce, Electronic-others, Financial, and Agricultural technology.
Table3. Number and proportion of the listed companies categorized by the paid-in capital, as of end of March, 2018 Data source: Website of Taipei Exchange
＊The minimum requirement of paid-in capital for listing on Taipei Exchange Main Board is NT$50,000,000. In this table, two of the three companies with paid-capital less than NT$100,000,000 are above the NT$50,000,000 minimum criteria, and the only one below the criteria is a foreign biotechnology company, TAIGEN Biopharmaceuticals Holdings Limited, which has paid-in capital at NT$20,908,000. (For the foreign company, instead of required paid-in capital, the minimum requirement of capital scale is the shareholder’s equity of NT
$100,000,000.)
Table 4. Number and proportion of the listed companies categorized by the market capitalization, as of end of March, 2018
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Data source: Website of Taipei Exchange＊The total number of the companies is 750 due to there were 2 companies under suspended trading period.
For comparison, the market capitalization (market cap) segments of the listed companies defined by the WFE official thresholds are as follows:
➢ Large market cap segment: market cap>USD$1.3 billion
➢ Mid-size market cap segment: USD$1.3 billion>market cap> USD$200 million
➢ Small market cap segment: USD$200 million >market cap> USD$65 million
➢ Micro market cap segment: market cap<USD$65 million
The number in the Table 5 indicates that a majority, about 84%, of Taipei Exchange listed companies are in micro and small market cap segments under the classification of global standards.
Table5. Number and proportion of the listed companies categorized by the market capitalization (defined by WFE), as of end of March, 2018
Micro market cap Data source: calculated by this report