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Amendments

Title：

Taiwan Stock Exchange Corporation Directions Governing the Particulars to be Recorded in the Securities Underwriter's Assessment Report  CH

Amended Date： 2022.10.24 
Categories： Primary Market > Review
Article Content Chapter Content Search Article No. Search Legal Basis Amended Article Attachment Legislative History Chinese

Title： Taiwan Stock Exchange Corporation Directions Governing the Particulars to be Recorded in the Securities Underwriter's Assessment Report(2021.03.31)
Date：
2     The assessment report of the securities underwriter shall be prepared in accordance with these Guidelines. The same applies in the event of an application by Taiwan Innovation Board listed companies or a Taiwan Innovation Board primary listed companies for relisting as a TWSE listed or TWSE primary listed company. The securities underwriter may make the necessary adjustments to in the particulars of the assessment report based on the actual needs of a particular application.
    The underwriter shall make an accurate record of actions taken according to these Guidelines and include such record in the working paper together with relevant information and data it has obtained. The working paper should be prepared and kept according to the following principles:
  1. The working paper should be as complete as possible and include proper details and organized in a systematic way by adding a table of contents and index;
  2. The working paper should specify the assessment procedure being implemented and the conclusion reached during the process;
  3. The assessors and supervisors responsible for double checking shall sign their names on the working paper to identify their responsibilities;
  4. The working paper should be kept for at least five years for reference.
    For purposes of these Guidelines, financial reports are consolidated financial reports prepared in accordance with the Regulations Governing the Preparation of Financial Reports as published by the competent authority. Where the issuing company has no subsidiary, individual financial reports will be acceptable.
    When assessing a foreign issuing company's application for primary listing, the securities underwriter base its assessment on the issuer's consolidated financial information.
4     Industrial circumstances and operational risks:
  1. Operational risks of the sector in which the issuing company runs its business:
    The underwriter shall list by way of example, taking into consideration the macro economy, the operational risks of the sector in which the issuing company runs its business (e.g. economic cycles, changes in the upstream/downstream of the industry, future development of the business, and product substitution).
  2. Operational risks of the issuing company:
    The underwriter shall list by way of example the operational risks such as to the issuing company's business operation, technical capabilities, R&D, patents, human resources, finance (including costs and exchange rate fluctuations).
    Where the listing application is filed in accordance with Article 4, paragraph 2 or 3, or Article 28-1, paragraph 5 or 6 of the Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings (“Review Rules”), the information about operation model and its risks, and the future development plan shall be described and explained.
    For a technology-based enterprise, cultural and creative enterprise or information software enterprise, the underwriter shall also describe the following:
    1. assessment of the probability of accomplishment of projected production time schedules and costs, market positioning, needs and estimates on future revenue benefits, and the internal control and security measures for research and development based on the level, sources, protection and advancement of technologies employed for its product production and development, and competitive edge, life cycles, sustainability, and R&D programs for new products; and
    2. information about the background (work experiences, academic background, job positions and seniority) of the company's directors participating in the operation and decision making, shareholders holding 5% or more of the total number of outstanding shares of the issuing company, shareholders contributing capital with patents or expertise, and officers controlling manufacturing technologies and technical developments, their shareholding ratios, share transfers by them within the past three fiscal years and the year of application, and how much time these technical shareholders and officers spend on and how they are actually involved in operation, and assessment of the impact on the finance and business of the issuing company and its action plans if these people discontinue their participation in the operation.
        For an applicant for listing of stocks on the Taiwan Innovation Board, the underwriter shall also describe the following:
    1. assessment, based on the features of innovation and operational models, of the possible risks to arise out of any changes to the material technologies, products, policies, and operational models, together with the countermeasures taken;
    2. assessment of the probability of accomplishment of projected production time schedules and costs, market positioning, needs and estimates on future revenue benefits, and the internal control and security measures for research and development shall be assessed based on the level, sources, protection and advancement of technologies employed for its product production and development, and competitive edge, life cycles, sustainability, and R&D programs for new products;
    3. background (work experiences, academic background, job positions and seniority) of the company's directors participating in the operation and decision making, shareholders holding 5% or more of the total number of outstanding shares of the issuing company, shareholders contributing capital with patents or expertise, and officers controlling manufacturing technologies and technical developments, their shareholding ratios, share transfers by them within the past two fiscal years and the year of application, and how much time these technical shareholders and officers spend on and how they are actually involved in operation, and assessment of the impact on the finance and business of the issuing company and its action plans if these people discontinue their participation in the operation; and
    4. for an enterprise in the biotechnology and medicine industry, assessment of the clinical trial progress of its core products.
5     Business circumstances:
  1. Summary of business (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the current period and last two fiscal years) -- to specify:
    1. analysis of changes in the major buyers and suppliers (top 10 buyers and suppliers of the year or those whose business amount accounts for 5% or more of the annual net operating revenue or net purchase amount) in the last period and the last three fiscal years -- to specify the names of the major buyers, amounts, and percentage such amounts account for of the annual operating revenue, in the last period and last three fiscal years, reasons of the changes in major buyers, and analysis of whether the changes are reasonable, any risks in concentration of sales activities, and a summary description of the sales policy of the issuing company; the names of the major suppliers, ratio of their net purchase amount to their net purchase amount of the current year, and the purchase amounts, in the last period and last three fiscal years, and analysis of changes in the major suppliers in the last period and last three fiscal years;
    2. assessment of fairness of changes in accounts receivable in the consolidated and individual financial reports and adequacy of provision of allowance for and possibility of recovery of losses of the issuing company for the last period and the last three fiscal years, and comparison with peer companies in the same sector of business.
  2. Summary of inventory (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the last period and last two fiscal years):
    Analysis of fairness of changes in net balance of inventory in the consolidated and parent company only financial reports and adequacy of provision of loss for market price decline and for obsolete and slow-moving inventories of the issuing company for the last period and the last three fiscal years, and comparison with peer companies in the same sector of business.
  3. Summary of business performance in the last period and last three fiscal years (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the last period and last two fiscal years) --
    1. list and describe how the operating revenue, gross operating profits, and operating profits of the issuing company in the last period and the last three fiscal years compare with those of peer companies in the same sector of business;
    2. list and describe if the changes in operating revenue, operating cost and gross operation profit by "department" or "major product line" in the last period and the last three fiscal years are reasonable;
    3. where business revenue or gross profit changes by 20% or more in the last period and the last three fiscal years, cost-volume-profit analysis should be performed to analyze reasons of the changes, and describe if these changes are reasonable.
  4. In case of a merger of another company for less than a full fiscal year, assessment of factors such as purpose, effects and fairness of the merger.
6     Financial circumstances:
  1. Explain in tabular form the analysis of the financial ratio and comparison with the financial ratios of listed companies and unlisted companies in the same sector of business for the last period and the last three fiscal years (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the last period and last two fiscal years), including financial structure, solvency, operational capability and profitability.
    If the listing application is filed in accordance with Article 4, paragraph 2 or 3, or Article 28-1, paragraph 5 or 6 of the Review Rules or if the applicant for listing of shares is a technology-based enterprise, cultural and creative enterprise or information software enterprise, the equity belonging to the owner of the parent company for the last financial year and the last period as in the financial statement shall be specified. The underwriter shall also evaluate the possibility that the equity belonging to the owner of the parent company in the year of application and the following year continues to exceed two-thirds of its paid-in capital. For issuers of shares with no par value or a par value per share that is not NT$ 10, the underwriter shall evaluate the possibility that the equity belonging to the owner of the parent company in the following year drops below two-thirds of the sum of stock capital and capital reserve - share premium.
    In the event of an applicant for listing of stocks on the Taiwan Innovation Board, a forecast of cash receipts and disbursements for the month of such application and each of the 12 months after the scheduled listing shall be provided, and whether the applicant complies with Article 29, paragraph 1, subparagraph 3 of the Review Rules shall also be assessed.
  2. Description of endorsements and guarantees, major undertakings and lendings to others, trading of derivatives and major assets transactions of the issuing company and all its subsidiaries (including transactions between parent company and subsidiaries) for the last period and the last three fiscal years (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the last period and last two fiscal years), and assessment of their impact on the financial position of the issuing company.
  3. List the plant expansion plans as of the last period of the application year and the funding sources, progress of work, and expected benefits, and evaluate the feasibility.
  4. Reinvested enterprise of the issuing company and all its subsidiaries (including transactions between parent company and subsidiaries):
    1. Provide an outline as of the latest financial report of the application year and assess the operation and profitability of the major reinvested enterprises (holding 20% or more shares or whose book value or original investment amount is at least NT$ 50 million) for the last period and the last fiscal year, and the share of profits and losses and distribution of share dividends (for offshore reinvested enterprises, the amount of profits remitted back should also be specified) of the subsidiaries, affiliates and joint ventures recognized by the equity method for the last period and the last three fiscal years (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the last period and last two fiscal years). In case of use of the resources and technologies of the issuing company, the fairness of consideration and technology compensation should also be assessed. If the reinvested enterprise experiences difficulties in operation or funding, the impact on the issuing company should also be evaluated.
    2. For applicants already investing or planning to invest in the Mainland Area, the underwriter shall describe their investments, and the share of profits and losses and amount of profits remitted back of the subsidiaries, affiliates and joint ventures recognized by equity method for the last period and the last three fiscal years (in the event of an applicant for listing of stocks on the Taiwan Innovation Board, the assessment shall cover the last period and last two fiscal years), and evaluate the impact on the financial position of the issuer.
    3. For ongoing investment projects as of the latest financial report of the application year with the projected total investment amount accounting for at least 20% of the paid-in capital for the last fiscal year or exceeding NT$ 500 million, assessment and description of the following are required: in case of issuers of shares with no par value or a par value per share that is not NT$ 10, the above 20% of the paid-in capital shall be replaced with 10% of the equity belonging to the owner of the parent company:
      1. purpose, starting time and expected completion date of the investment;
      2. funding sources of the investment: in case of loans, the underwriter shall evaluate the impact on the future operation of the issuing company; in case of own funds, the underwriter shall calculate the lost interest income or returns on reinvestment;
      3. benefits of investment: including projected market supplies and demands after completion of investment, annual returns on investment, and expected period for recovery of costs;
      4. current business and financial positions of the invested enterprise or project; and
      5. business experts' or technology experts' assessment and opinions on the investment project.
  5. If the underwriter is counseling the major subsidiaries of the issuing company in accordance with Article 6 of the TWSE "Assessment and Auditing Procedures for Securities Underwriters Handling Initial Listing", the underwriter shall provide the assessment and opinions stating whether there are any major operational risks or other significant irregularities.
  6. Based on the offer price and the average listed price of the issuing company on the Emerging Stock Market for the last month, the underwriter shall calculate, using the intrinsic value, the possible impact of the issued employee subscription warrants, for which the last day of stock-based payment transaction has not arrived, on the financial statement after listing of shares of the issuing company.
  7. If a state-owned enterprise applies for listing of shares and the financial reports it submits have not been certified by a CPA, the underwriter shall contact and ask the CPA to comment on the difference between certification according to the generally accepted accounting principles and certification by an auditing agency, and its impact on the financial report.
  8. If a financial enterprise applies for listing of shares, the underwriter shall clearly describe its provision of allowance and assess if the amount is adequate.
  9. The underwriter shall evaluate the fairness of the regulations governing issue of employee subscription warrants and equity securities established by the issuing company that is a foreign company as required according to the law of the jurisdiction where it was incorporated, and the impact on the shareholders' equity.
9     Provide the assessment opinion describing if the local issuer is involved any of the circumstances where listing of shares is advised against as described under Article 9, paragraph 1 of the Review Rules, or if the foreign issuer or a subordinate company thereof is involved any of the circumstances where listing of shares is advised against as described under Article 20-8 of the rules; or if an issuer applying for listing of stocks on the Taiwan Innovation Board is involved in any of the circumstances where listing of shares is advised against as described under Article 31, paragraph of said rules. Assess if the circumstance in Article 9, paragraph 1, subparagraph 11, item 2, Article 28-8, subparagraph 7, item 2, or Article 31, paragraph 1, subparagraph 10, item 2 of the same Rules applies. Also list and describe the following:
  1. In regard to each of the reductions of shareholding in the issuing company by the TWSE/TPEx-listed company over the last three years, whether the cause, ratio, stock assignees or specific persons negotiated with, price and impact on the equity of the shareholders of the TWSE/TPEx-listed company have been reviewed by the audit committee of the TWSE/TPEx-listed company, resolved on by its board of directors and reported at its shareholders’ meeting and, in the absence of an audit committee, have been consented to by two-thirds or more of the directors.
  2. Where over the last three years the TWSE/TPEx-listed company has reduced its shareholding in the issuing company on account of a forfeiture of its subscription rights to shares issued by the issuing company for cash capital increase, in regard to the pricing basis and standards for identifying specific persons to negotiate with in each cash capital increase undertaken by the issuing company, whether an assessment opinion by an independent expert on the fairness of the price of the new shares issued for cash capital increase has been obtained, whether such basis and standards have been reviewed by the audit committee or special committee and resolved on by the board of directors of the issuing company, and whether the relevant stock release procedures have been adhered to; and whether the composition, qualification, method of review, and other matters pertaining to the special committee are governed mutatis mutandis by the Regulations Governing the Establishment and Related Matters of Special Committees of Public Companies for Merger/Consolidation and Acquisition and, in the absence of an audit committee or special committee, whether consent of two-thirds or more of the directors has been procured.
    Provide the assessment opinion describing if the professional qualifications of and exercise of duties by the independent directors and members of the remuneration committee established by the issuing company and relevant matters are consistent with what is prescribed under the securities laws and regulations of the R.O.C.