Taiwan Tightens Rules on Private Bond Issuance to Prevent Loopholes

Taiwan's Ministry of Economic Affairs has implemented a new interpretation of the Company Act to address concerns over companies allegedly exploiting private bond issuance for fundraising. Recent questions were raised about companies like Zhao Ji Investment and Ji Ju Xie Management Consultants, which were suspected of raising funds through multiple private placements, potentially exceeding the spirit of regulations designed for limited investor access.

The new directive, effective immediately, mandates that non-publicly issued companies must aggregate the number of subscribers for all their outstanding private bonds. The total number of subscribers for any single company cannot exceed 35. This applies even if an investor participates in multiple private placements; they will be counted as a single subscriber. This measure aims to ensure that private placements remain genuinely private and do not evolve into de facto public offerings.

The Ministry explained that the existing limit of 35 subscribers for private placements is intended to distinguish them from public offerings, which target a broader investor base. The concern was that companies could repeatedly conduct private placements, each within the 35-person limit, thereby accumulating a large number of investors without adhering to public offering disclosure requirements. The new rule prevents this by requiring a cumulative count.

Officials emphasized that while the Company Act allows for private bond issuance as a financing channel, it should not be used to bypass regulatory oversight. If a company is effectively soliciting funds from the general public, it cannot claim to be conducting a private placement. The Ministry plans to collaborate with the Financial Supervisory Commission to enhance disclosure requirements for private bond issuances, including providing investors with more information on the issuing company's financial health and the intended use of funds.

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If all of this is implemented, the multiplier effect will impact economic progress, as MSMEs will thrive with the arrival of tourists from home and abroad.