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EDITORIAL: TDRs risky
and a disappointment
The government should consider scrapping the trading platform for Taiwan
depositary receipts (TDR), as it has failed to achieve its goal of boosting
local stock market turnover and has only created a financial loophole, with
overseas TDR issuers not required to report their financial statements to local
regulators like other locally listed stocks.
Based on the Financial Supervisory Commission’s rules, TDR issuers are not
required to file regular revenue or earnings reports, as they already do so in
the stock exchanges where they are listed. As such, TDR investors can only gain
indirect access to these companies’ financial statements through their local
agents. The commission seems to think that this is enough for investors to track
their investments, but is it?
The lack of financial transparency is a vital reason why many consider TDRs
unattractive or unsafe investment targets. One cannot overlook the risks that it
poses: Investors could face massive losses if the TDR issuers were to run into
problems such as embezzlement or poor management.
For example, lawmakers have alleged that the Wei (魏) family, major shareholders
of the Ting Hsin Group, which includes Hong Kong-listed Tingyi (Cayman Islands)
Holding Corp, had used more than half of the NT$17.1 billion (US$577 million)
raised from issuing Tingyi TDRs to speculate on real estate. They have accused
the family of using the proceeds to acquire a 37 percent stake in Taipei
Financial Center Corp, the operator of Taipei 101, rather than to improve its
core business operations. However, the FSC has said that based on its
investigation, the investment was in line with the company’s plan to use part of
the funds for investment in the property market, as stated in the company’s
prospectus.
Lack of transparency is just the tip of iceberg amid a wave of TDR delistings
after Want Want China Holdings announced in August that it was delisting on Oct.
15. The announcement sent a shock wave through the market, as the Hong
Kong-listed food conglomerate’s TDR listing in 2009 was viewed as a milestone in
Taiwan’s move to promote this trading platform. After Want Want’s withdrawal,
Thai rubber manufacturer Hwa Fong Rubber (Thailand) Public Co also said it would
delist its TDRs on Dec. 3.
Another two companies are likely to follow suit, as their turnover had fallen
below 10 million units — the minimum threshold set by the Taiwan Stock Exchange
— over the past three months. The delisting of these two companies will bring
the number of TDR issuers down to 27 by the end of this year, from 36 when TDR
issuance was at its peak. Over the past two years, not a single company had
issued TDRs.
Clearly, the TDR trading platform has failed to give the stock market the boost
that the government was expecting. Turnover on the main bourse has remained
weak, reaching only NT$77 billion yesterday — far from a healthy level of NT$100
billion.
The FSC seems to have realized the shortcomings of TDRs and has turned its focus
to encouraging companies to launch initial public offerings on the local stock
market. It has also said it will step up its oversight on TDR companies.
Since TDRs are unable to bring the positive effect expected and have lost their
appeal to local investors, the commission would do well to just get rid of this
platform.
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