Taiwan: the three-year freeze on privately placed stock

A conversion price referenced to future market prices is not available to a TWSE or TPEx listed company. Taiwan prices a 私募 at a price determination date resolved by the board, not at conversion, and Securities and Exchange Act Article 43-8 then freezes the privately placed securities: no resale for a full year, and only limited routes until three years have run.

Key takeaways

• The price is struck once, at a board meeting. Under the FSC's Directions for Public Companies Conducting Private Placements of Securities the reference price is the higher of a simple average closing price over the 1, 3 or 5 business days before the price determination date and the average over the 30 business days before it.
• The 80% line is a disclosure trigger, not a floor. Pricing below 80% of the reference price is permitted; what it requires is an independent expert's opinion on the basis and reasonableness of the price, put before shareholders.
• Every placement needs a supermajority. Article 43-6 requires at least two-thirds of the votes of the shareholders present at a meeting at which those present represent a majority of the total issued shares.
• Article 43-8 is what closes the market. Resale is barred for one full year from delivery, then permitted only to persons the competent authority prescribes, subject to holding-period and volume limits, until three years have run.

私募: the price determination date, and nothing after it

The Taiwanese private placement, 私募, is priced by a board resolution on a named date. The FSC's Directions define the reference price by looking backwards from it, taking the higher of a 1, 3 or 5 business day average of closing prices and a 30 business day average, and they require subscription monies in full within 15 days of that resolution.

That architecture leaves nowhere for a refixing clause to attach: no provision in the Directions permits the conversion price to be adjusted against market prices occurring after the board has resolved. A structure whose whole economic content is a strike computed at each conversion is not a modified Taiwanese instrument; it is a different one.

The 80% line is a disclosure trigger, and is constantly misread

Taiwan is frequently described as flooring private-placement pricing at 80% of a reference price. Read the Directions and that is not what they say. Where the price of privately placed common shares falls below 80% of the reference price — or, for securities with equity characteristics, below 80% of a theoretical price — the consequence is a disclosure obligation, not a prohibition. The company must put before its shareholders an independent expert's opinion on the basis of the pricing and its reasonableness, and the expert must be a certified public accountant, a lawyer or a securities underwriter who is not a related party.

The practical effect is close to a floor, because a board asking for a two-thirds supermajority does not want to hand the meeting an expert opinion justifying a deep discount. But it is a governance gate, not a formula: the discount is negotiable, and the timing of the strike is not.

Article 43-8, and why a capital provider cannot work with it

The decisive rule sits in the statute, not the Directions. Article 43-8 permits a resale only in defined cases, and the restriction must be conspicuously annotated on the certificates.

Compare the United States, where restricted securities of a reporting issuer clear in six months on the Rule 144 conditions — see how the Rule 144 holding period is computed. A three-year freeze is not a longer version of that but a different business: capital that cannot recycle inside three years is closed-end capital, and the discount needed to accept it is one no Taiwanese board would put to a supermajority vote.

What Taiwan does support

Taiwanese companies raise substantial money, just not this way. The routes that carry the volume are the 現金增資, a cash capital increase offered publicly; the 國內可轉換公司債, the domestic convertible bond; and the 海外可轉換公司債 or ECB, issued offshore to international investors. None carries the Article 43-8 annotation. Article 43-7 reinforces the divide by forbidding general advertising or public inducement in connection with a private placement or its resale, so the private route cannot be marketed into the public one. See convertible notes for listed issuers and how a listed-issuer private placement is documented.

Where else the same problem appears

Taiwan belongs to a small group in which issuance is possible and the stock is then immobilised. Vietnam restricts privately placed stock for one to three years; Korea reaches the same place through its resale-restriction regime while still allowing a floored refix; and China locks placed shares up and then throttles the selling. A market-referenced structure needs a working exit at least as much as it needs a pricing mechanic. If the group lists somewhere that provides one, check the eligibility test.

• All markets
• All instruments
• Free-trading shares

Primary sources

• Ministry of Justice — Securities and Exchange Act, Articles 43-6 to 43-8
• FSC — Directions for Public Companies Conducting Private Placements of Securities
• Taiwan Stock Exchange
• Taipei Exchange

Financing a Taiwanese issuer: frequently asked questions

Can a Taiwanese listed company issue a convertible that reprices with the market?

No. The Financial Supervisory Commission's Directions for Public Companies Conducting Private Placements of Securities fix the price at a price determination date, which is the date the board of directors resolves on the price, conversion price or subscription price. The reference price is computed backwards from that date, and the Directions contain no mechanism for adjusting the conversion price against market prices that occur afterwards.

Is 80 percent of the reference price a hard floor in Taiwan?

No, and this is the point most often reported wrongly. Pricing below 80 percent of the reference price is not prohibited. It triggers a disclosure obligation: the company must put before shareholders an independent expert's opinion on the basis and the reasonableness of the pricing. The expert has to be a certified public accountant, a lawyer or a securities underwriter, and may not be a related party.

When can privately placed Taiwanese securities be resold?

Article 43-8 of the Securities and Exchange Act allows a resale only in defined cases. Transfers to persons prescribed by the competent authority are permitted after one full year from the delivery date and within three years, subject to holding-period and volume restrictions, and transfer is free once three full years have elapsed. Narrow further routes exist, including transfers by operation of law and private transfers of not more than one trading unit at three-month intervals.

What can a TWSE or TPEx issuer do instead?

Taiwanese companies raise real money regularly, but through publicly offered instruments rather than private ones. The common routes are a cash capital increase offered to the market, a domestic convertible bond, and an overseas convertible bond issued offshore. Each is priced as a discrete deal and none carries the Article 43-8 freeze, which is why they carry the volume.