Clarifying Investment Criteria

FSC Vice Chairman Huang Tien-mu has given assurances that the investment approval process in the future will follow international practice. Photo credit: CNA

What is needed now is a full, transparent listing of all the criteria upon which investments will be judged.

Since its establishment in 2012, AmCham Taipei’s Private Equity Committee has held numerous constructive meetings with officials from relevant government agencies, particularly the Investment Commission under the Ministry of Economic Affairs and the Financial Supervisory Commission. The FSC is instrumental in considering investment approvals for cases involving either financial institutions or companies publicly listed in Taiwan.

The reason for the Committee’s creation was concern in the investment community that Taiwan’s investment approval process was frequently opaque and inconsistent. Private equity (PE) firms cited instances in which they believed they had fully adhered to the publicly stated legal requirements, only to find that their investment applications were rejected or held up seemingly indefinitely. That outcome was troubling, since the PE companies had already expended substantial time and money in negotiations and due diligence with input from lawyers, accountants, and consultants. As a consequence, Taiwan has received no foreign PE funding in recent years, even though billions of dollars have been flowing into many other markets in the region.

Over the past three years, however, the discussions with Taiwan government officials have brought a number of positive developments:

  • The Executive Yuan drafted amendments to the Statute for Investment by Foreign Nationals and the Mergers & Acquisitions Law to define what constitutes adequate protection to minority shareholders in cases of corporate takeovers. Although the bill has not yet been taken up by the Legislative Yuan, eventually its passage will provide a clear definition of what is required for approval by the government in these cases.
  • The Investment Commission eliminated a previous guideline that Taiwan’s “national champions” (defined as the Top 100 corporations) are ineligible for takeover by foreign investors.
  • The FSC dropped some of the more subjective criteria it previously used in reviewing investment applications, such as the impact the deal might have on capital markets or in weakening the capital structure of the target company.
  • The Investment Commission pledged to present its review criteria in future as formal regulations rather than merely FAQs posted online. The Commission has already removed the English-language version of the FAQs from its website, although the Chinese-language version remains (presumably until passage of the above-mentioned legislative amendments).
  • High-level officials made public statements welcoming the inflow of PE investment. At a conference in Taipei last November organized by the Asian Venture Capital Journal, for example, FSC Vice Chairman Huang Tien-mu stressed that the investment approval process in future would “respect the market mechanism and follow international practice.” He advised the participants to disregard the “legacy cases” that had been sources of concern.

“Clearly we’ve made some substantial progress over the past few years in clarifying the investment criteria,” says William E. Bryson Jr., Senior Advisor of Global Market Advisors and chairman of AmCham’s PE Committee. He notes that what is needed now is a full, transparent listing of all the criteria upon which investments will be judged, such as what would occur with passage of the legislative amendments and replacement of the FAQs with explicit regulations. “PE investors will accept whatever rules the government sets,” he explains. “But they need to have clear and objective regulations so they can judge which projects are going to be feasible and which are not.

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