Spotlight: the IPO process in Taiwan

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The offering process

i General overview of the IPO process

Below is a brief overview of the IPO process in Taiwan. The time frames set forth in the table reflect common practice. Specific time frames for individual applicants may vary depending on surrounding circumstances.

Domestic issuers

Step	Particulars	Time frame
Pre-listing preparation	The company engages two or more RSFs, of which one should act as the lead RSF and the other as co-RSF; CPA; and legal counsel. Initial due diligence is carried out by the lead RSF. Establishment of the issuer's internal control and audit systems with CPA assistance is completed. Restructuring of the company's group companies (or readjustment of the company's investment structure) is carried out. The lead RSF and the CPA assess the eligibility for listing.
Apply for public issuance of shares	A company is required to become a publicly issued company before it can apply for registration of shares with the ESM. The application for public issuance of shares should be submitted to the TPEx. The application will be deemed to be approved by the TPEx 12 business days after it receives the application (the TPEx may, at its sole discretion, halt the calculation of the 12-business-day period if it requires the company to provide supplemental information or reply to its enquiries regarding the application documents).	12 business days.
Sponsorship guidance	The lead RSF files sponsorship guidance documents to the TWSE or TPEx. There is no required period for the lead RSF's sponsorship guidance documents.
Apply for registration with the ESM	The application for registration with ESM should be filed to the TPEx. The TPEx will only conduct a documentation review of an ESM registration application and will usually grant its approval three business days after receiving the application from a publicly issued company and 12 business days after receiving the application from a company that applies for PSB listing. Shares of the applicant company can be traded on the ESM on the sixth business day after receiving TPEx approval.	3 business days (or 12 business days) + 5 business days.
Submit listing application	The listing application to the TWSE or TPEx can only be filed after the applicant company's shares have been traded on the ESM for six months.
Review procedure	Formal document reviews are conducted by in-charge officers of the TWSE or TPEx. Review is conducted by the Securities Listing Review Committee of the TWSE or TPEx.	6 to 10 weeks.
Ratification	After the Securities Listing Review Committee of the TWSE or TPEx grants its approval, the listing application will be submitted to the board of directors of the TWSE or TPEx for ratification.
Public underwriting and listing	The applicant company is required to apply to the TWSE or TPEx for public issuance of new shares for cash capital increase before listing. The application for public issuance of new shares for cash capital increase will be deemed to be approved by the TWSE or TPEx seven business days after it receives the application. The applicant company can then proceed to the IPO underwriting process and determine the listing date.	2 to 3 months.

Foreign issuers

Step	Particulars	Time frame
Pre-listing preparation	The company engages a lead RSF, a CPA and legal counsel. Initial due diligence is carried out by the lead RSF. Establishment of the company's internal control and audit systems with CPA assistance is completed. Restructuring of the company's group companies (or readjustment of the company's investment structure) is carried out. The lead RSF and the CPA assess the eligibility for listing.
Sponsorship guidance	The lead RSF files sponsorship guidance documents to the TWSE or TPEx.	At least six months.
[Optional] Apply for public issuance of shares and registration with the ESM	A foreign company may apply for registration with the ESM after completing the six-month sponsorship period. If the foreign company decides to register with the ESM before submitting the listing application to the TWSE or TPEx, it is required to apply to the TPEx for public issuance of all shares and registration of shares with the ESM concurrently. The application process for public issuance and ESM registration is the same as that for domestic companies.	12 business days + 3 business days + 5 business days.
Submit listing application	The listing application to the TWSE or TPEx can only be filed after the foreign company has completed the six-month sponsorship period. The foreign company is required to file applications to the TWSE or TPEx and the Central Bank of the Republic of China (Taiwan) (CBC) concurrently.
Review procedure	Formal document reviews are conducted by in-charge officers of the TWSE or TPEx. Review is conducted by the Securities Listing Review Committee of TWSE/TPEx. Concurrent review of the application documents is conducted by the CBC.	6 to 10 weeks (for receiving CBC approval and TWSE/TPEx board ratification).
Ratification	After the Securities Listing Review Committee of the TWSE or TPEx grants its approval, the listing application will be submitted to the board of directors of the TWSE or TPEx for ratification.
Public underwriting and listing	The applicant company is required to apply to the TWSE or TPEx for public issuance of all shares and cash capital increase by issuance of new shares before listing (if the foreign company has registered with the ESM before submitting a listing application to the TWSE or TPEx, only the application for cash capital increase of new shares is required at this stage). The application for public issuance of shares and cash capital increase will be deemed to be approved by the TWSE or TPEx 12 business days after it receives the application. The applicant company can then proceed to the IPO underwriting process and determine the listing date.	2 to 3 months.

ii Pitfalls and considerations

The TWSE or TPEx conduct a thorough and substantive review of IPO application documentation during the IPO process. According to rules governing the review of securities and foreign securities for trading on the TWSE or TPEx, the TWSE or TPEx shall deny approval for a company's application if any of the following circumstances exists:

1. the applicant company has conducted any activities in violation of the principle of good faith in the most recent five years, or its directors, general manager or de facto responsible person violated the same principle in the most recent three years (for a TPEx listing application, the five-year period for the applicant company is shortened to three years);
2. the board of directors or supervisors of the applicant company are not able to independently perform their functions; or
3. in respect of an applicant company that has been registered with the ESM since the most recent fiscal year, any of its incumbent directors or material shareholders (those who hold 10 per cent or more of the total issued shares) traded the company's shares not on the ESM platform.

Other major concerns that the TWSE or TPEx may have about an applicant company's application, and for which the TWSE or TPEx may deny approval, include but are not limited to the following:

1. the finance or business of the applicant company is not independent from those of certain other persons (e.g., the business of an applicant heavily relies on one or two buyers);
2. the applicant company has had material labour disputes or environmental pollution issues and has not made any improvement;
3. the applicant company has had material transactions not on an arm's-length basis and has not made any improvement;
4. the applicant company has failed, in a material respect, to effectively implement its accounting system, internal control system or internal audit system, or has failed to prepare financial reports in accordance with relevant laws and regulations and generally accepted accounting principles; and
5. there has been a serious deterioration in the applicant company's business operations.

iii Considerations for foreign issuersNecessity of using a listing vehicle

While the common practice for a foreign company to come to Taiwan for listing is to set up a listing vehicle in an offshore jurisdiction, such as the Cayman Islands, legally speaking, a foreign company is not required to do so and may make the listing application with the company that operates its main business.

However, in reality, owing to the requirement to amend the articles of association for minority shareholders' protection as described in Section II.ii, using a listing vehicle has proved to be a more viable approach. As of today, all foreign companies (except for one) that ever came to Taiwan for listing are all using listing vehicles incorporated in the Cayman Islands.

PRC elements

Under Taiwan law, a PRC investor refers to any individual, juristic person, organisation or any other institution from mainland China. It also includes any company located in a third area (an area other than mainland China and Taiwan) and invested in by PRC investors whereby (1) the shares held or capital contributed directly or indirectly by PRC investors in aggregate exceed 30 per cent of the total number of shares or total amount of capital contribution of the third-area company, or (2) PRC investors have control over the third-area company.

If more than 30 per cent of a company's total issued shares are owned by PRC investors, it is not allowed to apply for listing in Taiwan. Similarly, the TWSE and the TPEx will not approve a foreign company's listing application if PRC investors have majority seats in the company's board or have control over the company's management or operation.