Waiting for the Cross-Strait Service Agreement – Taiwan Focus
January 16, 2014 | BY
clpstaff &clp articles &C Y Huang, Chairman of the Taiwan Mergers & Acquisitions and Private Equity Council (MAPE), spoke to China Law and Practice about the hold up on the Cross-Strait Service Agreement and the effect this is having on deals
What are the proposed changes to M&A Act in Taiwan?
The changes are rather comprehensive covering the interests of both minority and majority shareholders. In particular, there is a clause from the Yageo case. This was a take-private, which the majority and minority shareholder had approved, but was turned down by the regulators for dubious reasons. The main reason was that it was not good for the general social public image. Investors do hope that the government will able to make the rules on delisting clearer and the proposed changes to the Act is one step towards this.
Previously, with a 50% vote you could privatise a company, but now you require two-thirds. However, the majority shareholder will still be allowed to participate in the voting for any major restructuring of the company. There are many other details in the Act, not just covering delisting. For example, the Act introduces more methods for the payment of M&A deals through cash, assets and IP. It is good to see payment mechanisms expanded in the Act. Also, the Act defines merger deals to include spin-offs. Overall, the changes are comprehensive and positive. The key thing is whether the government can implement these changes. The government's final approval or rejection can be a major concern for foreign investors.
Have there been any significant deals this year?
Unfortunately, there seems to have been a slowdown of deals since last year. This is probably because the government is dealing with the Cross-Strait Service Agreement. The Agreement has already been signed, but it needs approval from the Taiwanese legislators. However, the opposition party is making a lot of noise that the Agreement has not been studied properly or communicated effectively to the Taiwanese people. As a result, the schedule has been pushed back and now it looks like the Agreement will not be approved until next year. There were some deals towards the end of 2012, but since then all attention has been on the Service Agreement.
There are several transactions in the pipeline, however. For example, ICBC's investment into Bank SinoPac in Taiwan, which will go ahead once the Agreement has been approved. China also now allows 51% majority control of securities companies for Taiwanese investors. The SinoPac Group through SinoPac Securities announced a joint venture with an investment entity in Xiamen. SinoPac will hold 51% and Xiamen 49%. China has never allowed majority ownership so this preferential status is a big deal for Taiwan. The Cross-Strait Service Agreement has put this on hold though and there were also strong objections from the opposition party.
What is your outlook for investment?
Taiwan is an interesting place for investors, especially considering the IPO market in Mainland China. Investors had looked at Southeast Asia during the IPO freeze on the Mainland, but with the slowdown in the US and the adjustment of stock prices, investments there are not good. This has made Taiwan a safer bet, compared with mainland China and Southeast Asia.
There seem to be political forces in Taiwan that are holding us back. People think that any opening of the Taiwan market will cause mainland China to swallow it up and affect our future. However, this is not what will happen and the government has not been very effective in communicating with the people about this. In addition, the Cross-Strait Service Agreement is incredibly one-sided and in Taiwan's favour, so why it has not gone through is a mystery. Even mainland China is wondering why Taiwan will not agree when it is so beneficial to Taiwan.
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