Hong Kong's pull threatens
Taiwan's bourse By Ting-I Tsai
TAIPEI - More and more Taiwanese
businesses are flocking to launch their initial
public offerings (IPOs) on the Hong Kong stock exchange,
prompting concerns that the island's own
securities market is being marginalized.
In February 2005, Foxconn International
Holdings Limited from Taiwan, one of the
world's largest global manufacturing service
providers in the computer, communications and
consumer electronics industries, made its IPO in
Hong Kong. By the end of last year, a total of
about 40 Taiwanese companies had listed on the
market, including global leading wooden furniture
manufacturer Samson Holdings, while other
Taiwanese companies are lining up to go through
the procedure.
The trend, market analysts
and observers say, is marginalizing Taiwan's own
stock market. They urge the Taiwan authorities
to
lift
the current restriction that a Taiwan company's
mainland-bound investment must be kept below 40%
of its assets by value. The proportion of
Taiwan listings shifting to Hong Kong is already
sizable. In 2005, 14 Taiwanese companies went
public on Taiwan's stock market, compared to eight
in Hong Kong.
"The decrease [in Taiwan
listings] means enterprises have lost their
interest in raising funds here, and the decrease
of daily trading volume reflects the pessimistic
sentiments of local investors. This is like voting
[with money rather than ballots]," said Sean Chen,
chairman of the Taiwan Cooperative Bank, in a
recent interview with a Chinese-language magazine.
Chen, former chairman of the Taiwan Stock
Exchange Corporation, once suggested the two stock
exchanges of Taiwan and Hong Kong cooperate with
each other for "dual-listing", an idea that has
never been realized.
Over the past year,
Foxconn's price has increased sharply from its IPO
price of HK$3.88 to HK$15.85 as of June 14. After
watching Foxconn's performance, more and more
high-tech Taiwanese companies are lining up to
list in Hong Kong.
HannStar Board
Corporation, a Taiwan-based high-end multilayer
printed circuit board manufacturer, has invested
in mainland China's Jiangsu province for
years and has scheduled its IPO in Hong Kong by
the end of this year. According to a senior
official of the company, Foxconn's success on the
Hong Kong stock market is one reason for the
company to go public there.
Another
leading Taiwan company, Uni-President Group, which
now operates 50-plus factories around mainland
China, manufacturing beverages and instant
noodles, is also scheduled to launch its IPO in
Hong Kong by the end of this year.
With
more and more Taiwanese firms going public in Hong
Kong, Barits International Securities selected 15
of them to compose a Taiwanese Enterprises Index
in Hong Kong last November. The Hong Kong Stock
Exchange itself has also recruited Taiwan firms
aggressively, holding three seminars in Taiwan to
lure Taiwanese firms for listing since January
2006. Some analysts now project that the number of
Taiwanese companies listed in Hong Kong will reach
100 by the end of this year.
The Hong Kong
stock market's higher price/earnings ratio, higher
transparency in operation, and more freedom in
fund distributions are some of the factors
attracting Taiwanese companies. Despite the
Shanghai Stock Exchange and the Singapore Stock
Exchange both soliciting Taiwanese companies for
IPOs, analysts believe Hong Kong is still their
favorite.
"The problem now is these
companies [that are] dual-listed in both Hong Kong
and Taiwan will write their profits into their
Hong Kong companies, and what [damage will] that
do to Taiwan's market?" said Chiu Tai-san, former
vice chairman of Taiwan's cabinet-level Mainland
Affairs Council. Chiu, now a legislator of the
ruling Democratic Progressive Party (DPP), has
pushed to remove the legal obstacles that prevent
mainland China-based Taiwanese companies from
raising funds or setting up their headquarters in
Taiwan.
More than 10 years have passed
since Taiwanese companies began to shift their
manufacturing operations to mainland China. Since
the late 1990s, these companies have been calling
for permission to raise funds from Taiwan's
securities market for their business expansion.
The calls have become steadily louder.
Debates on how to assist these companies,
and whether they violate Taiwan's existing
regulations by investing in mainland China, have
been continuous within the government and the DPP.
The DPP government responded in its 2001
Economic Development Advisory Conference (EDAC) by
vowing to help businesses caught out by Taiwan's
restrictions to raise funds through an alternative
offshore bourse. But five years later, the
proposal for the offshore stock market has been
ruled out, and Taiwanese firms are lining up to
raise funds in the Hong Kong, Singapore and
mainland China stock markets to get around the
legal limits.
"Taiwan's main problem is
its flip-flopping policies caused by the frequent
reshuffle of senior officials," said Weng Ji-neng,
Masterlink Securities' top representative in
Shanghai. In the summer of 2004, the then Taiwan
premier, Yu Shyi-kun, pledged he would see to it
that the first mainland China-based Taiwanese
company be successfully listed on the local stock
exchange. The policy, however, was frozen after Yu
stepped down from the position in January 2005.
As part of the efforts to realize the EDAC
consensus, the DPP administration recruited the
former chairman of Barits International
Securities, Jerry Huang, to draw up a proposal for
the offshore bourse, which would give a green
light to mainland-based Taiwanese companies to
raise funds in Taiwan and was scheduled to be
introduced in the third quarter of 2005.
More than 100 mainland-based companies
showed interest in the proposal, which in fact was
initiated in 2000. The incumbent chairman of the
Taiwan Stock Exchange Corporation, Wu Nai-jen, a
heavyweight DPP politician, also vowed to visit
China to promote the offshore bourse among
Taiwanese companies. That proposal has now been
abandoned, because of security and other concerns.
Samson Holdings was once waiting to be the
first mainland China-based company to go public in
Taiwan. In the end it made its IPO in Hong Kong in
late 2005, after learning of the difficulty of
transmitting funds raised in Taiwan to mainland
China.
"The [offshore bourse] proposal was
just like a fraud tactic. No accountant is talking
about that anymore," said Taipei-based accountant
Shih Fang-ming. Still, there are continuing public
concerns over the proposal to set up an offshore
bourse for mainland-based Taiwanese companies.
Some opponents have argued that an
offshore bourse would be unfair to Taiwanese
investors since there is no mechanism to monitor
the business operations of the mainland-based
companies, and some companies might simply misuse
the funds they raised in Taiwan.
Others,
like the island's incumbent vice-premier and
former chairwoman of the Mainland Affairs Council,
Tsai Ing-wen, worry that investors might lose
interest in the major index once the offshore
bourse is launched.
According to the
Financial Supervisory Commission, how to lift the
40% capital ceiling restriction is under
discussion among several government departments.
New rules governing mainland-bound capital
investment will likely be introduced, but the
details remain unclear.
After so many
wasted years, however, some economists say the new
rules, even if launched, might mean little.
"Taiwan is giving away [its] status as an
Asia-Pacific fundraising hub to Hong Kong, after
it [gave] away [its] status as [an] Asia-Pacific
shipping hub to Hong Kong with its persistent
resistance against opening direct [shipping] links
with China," said Tung Chen-yuan, a professor at
the National Chengchi University and a senior
researcher on cross-strait economic affairs.
Ting-I Tsai is a Taipei-based
freelance writer.
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