Schive Chi, Taiwan Stock Exchange Corp chairman Provided to China Daily

Taiwan Depositary Receipts (TDRs) - an indirect way of tapping the island's capital market - are paving the way to the ultimate goal of dual listings on the stock market in Taipei as well as bourses on the mainland and Hong Kong, Taiwan Stock Exchange Corp (TWSE) Chairman Schive Chi told China Daily in an exclusive interview.

"From TDRs to initial public offerings (IPO), we expect to see a ripple effect," said Schive, who has pinned high hopes on the booming performance of the TDR market up to date.

TDRs are the counterpart of the more widely traded ADRs (American Depositary Receipts). It is dubbed as a "secondary listing," in which a custodian institution, usually a bank, issues a certificate representing a specified number of shares in a foreign stock. This entitles its holder to the same rights as that enjoyed by common shareholders in the company's home market. Given the tedious procedure and requirements for IPOs, a depositary receipt is an easier way for companies to raise capital in other countries/markets, while investors are able to realize dividends and capital gains in another market.

Currently 24 companies have their TDRs listed on the TWSE, among them 10 from Singapore and 14 from Hong Kong. Schive estimated that by the end of this year the total number of TDRs may reach 34. Meanwhile, Schive said that many Hong Kong-listed red-chip companies are in talks with the Taipei bourse for a TDR listing. "We hope the first one will list by the end of this year," he said.

The bourse's initial attempts at TDRs was in order to woo Taiwan companies operating outside the island back, such as Want Want and Tianyi, food and beverage makers which are listed in Hong Kong. Due to policy hurdles, these companies - which operate on the mainland - cannot issue new shares in Taiwan.

"However, we observed that many non-Taiwan companies have also expressed serious interests in our stock market, so we think why not?" said Schive.

Meanwhile, riding the TDR wave, some "new faces" have also shown up in the Taiwan stock market, which traditionally sees information technology companies taking a 40 percent chunk of the total. Among them are the world's third largest coffee maker Super Group, maintenance service provider BH Global Marine, and Yangzijiang Shipbuilding.

On September 8, 2010, Singapore-listed mainland shipbuilder Yangzijiang Shipbuilding issued its TDRs, the first mainland company with a presence on the island's stock market. The breakthrough was welcomed with enthusiasm by Taiwan investors. Its closing price on October 26 was NT$23.25, up 24 percent from its debut price of NT$18.8.

Overall, the TDR market has been a bright spot. Statistics from TWSE showed that average turnover velocity - the number of shares traded divided by the total number of shares - of TDRs for the first eight months of 2010 was 430 percent, 28.25 times of that in the companies' home market. The average transaction volume of TDRs is 6.03 times that of their home market.

Schive said there were several reasons for the large number of transactions. Firstly, the number of shares in the pool is limited, with TDRs accounting for 14.28 percent of shares back in their home markets.

Secondly, the Taiwan stock market historically has a higher turnover velocity. According to data compiled by the World Federation of Exchanges, turnover velocity in Taiwan was two to three times higher than exchanges in Hong Kong and Singapore.

Last but not least, Taiwan underwriters brought some niche companies with selling points, such as those playing the mainland card or the environmental card, stoking the interest of investors.

"Like the mainland, the savings rate in Taiwan is relatively high, every year a large amount of capital flows out to seek investment opportunities, so we hope to increase and diversify our domestic financial products for Taiwan investors," said Schive.

However, such buoyancy has also triggered concerns about speculation, which has set the alarm bell ringing for the regulator.

"Though speculation cannot be completely ruled out, we will adopt stricter rules to regulate listed companies and protect investors," said Schive.

In September, for example, shares of Kith Holdings were suspended from trading in Hong Kong, but this piece of information was not simultaneously disclosed in Taiwan. The TWSE has subsequently revised its regulatory regime, stating that if shares in the home market are suspended from trading, the company's TDR will also stop trading.

"The consequences of false information and out-of-sync information are very serious," said Schive.

China Daily

(HK Edition 10/30/2010 page3)