CHAVALIT LAW GROUP Solicitors & Advocates

September 2006

Corporate Finance Update 2006 Existing Laws and Regulations related to Public Companies

Public Company Limited Act

1. Offering of new shares
2. Requirements for Articles of Association
   Question
   How is a conflict between shareholders agreement and articles of association resolved ?
3. Objects of a public company
4. Par value of each share
5. Restrictions on transfer of shares
   no restriction on transfer of shares unless required by laws
6. Validity on transfer of share
   between a transferor and a transferee
   against a third party
7. Treasury StockThe Company shall not own its shares or take them in pledge.
   Exceptions
   A company may repurchase its own shares on any of the following:
   1) Minor shareholders disagree with the resolutions on rights to vote and to receive dividends.
   2)  Accumulated profits and excess liquidity of the company.
   Shares held by the company shall not be counted as quorum of a meeting of shareholders and shall have no rights to vote and to receive dividends.
8. Conflicts of Interest
   - competition with the business of the company
   - purchase or sale property of the company with a director
   - direct or indirect interest of a director in any agreement
9. Resolution of acquisition or disposal of business by a public company
10. Issuance of New Shares
    The company may increase the amount of its registered capital by the issuance of new shares.
11. Offering of New Shares
    - Right Issue (RI)
    - Private Placement (PP)
    - Public Offering (PO)
12. Issuance and Offering of New Bonds

Significant Amendments of Regulations in relation to Corporate Finance Activities and Transactions

SEC
Offering and Issuance of New Shares
Offering of new shares on a private placement basis

1. offering of new shares at the total aggregate value of not more than Baht 20 million within a period of 12 months
2. offering of new shares to not more than 35 specific investors within a period of 12 months
3. offering of new shares to institutional investors.

Deemed approval

Offering of new shares on a private placement basis by a public company shall be deemed to be approved by the Office of the SEC.

Offering of new shares at the low price

The offering price is lower than 90% of the market price.
Approval for offering of new shares at the low price
Approval for offering of new shares at the low price shall be made upon fulfillment of the following:

1. A written notice sent to shareholders at least 21 days in advance.
2. The resolution of a meeting of shareholders of not less than 75% of the votes.
3. The resolution shall be obtained within 1 year before the date of filing an application.

Exemptions
The provisions on the offering of new shares at the low price shall not apply in the following:

1. offering of new shares to directors and employees (ESOP).
2. offering of new shares under a business reorganization plan under the Bankruptcy Act as approved by a court.
3. offering of new shares for the purpose of exercise of right under convertible securities firstly offered to existing shareholders in proportion to their shareholding.
4. any other case as it is necessary and appropriate.

Market price for the purpose of offering of new shares at a low price
Market price may be calculated from each of the following prices:

1. Average Weighted Closing Price of shares on the SET for not less than 7 business days and not more than 15 business days prior to the offering price fixing date.
2. Price fixed by a comparative analysis of a demand for purchase and a demand for sale of new shares such as a book building.
3. Fair value assessed by a financial advisor in a list of financial advisors as approved by the Office of the SEC.

Conditions for PP and offering of new shares at a low price

1. no advertising of new shares shall be made to the public.
2. no offering of securities shall be made to the public unless approved by the Office of the SEC.
3. the offering shall be made within 1 year after the date of the resolution.

Offering of new shares on a public offering basis

1. A public company shall apply for approval of offering of new shares to the public together with supporting documents to the Office of the SEC.
2. An applicant shall obtain approval provided that essential conditions including the following for the approval have been fulfilled:
   (1) protection of rights of shareholders and fair treatment to shareholders
   (2)  roles, duties and responsibilities of the management and a controlling person
   (3) disclosure of information

Shareholding Structure of the applicant, its subsidiaries and associated companies

• no cross-shareholding between the applicant, a major shareholder, its subsidiary and an associated company
• no potential conflicting person of the applicant.

Structure of the Board of Directors and the management of the applicant

1. At least 3 independent directors shall have qualifications as required by law.
2. The Audit Committee consists of at least 3 members shall comply with the rules.

Question
Should a member of the Audit Committee obtain a bachelor decree in accounting and finance in reviewing the financial statements ?
A listed company offering new shares

1. no pending of filing of financial statements
2. requirements for an IPO fulfilled

Conditions to be complied with after the approval

1. an offering price to the public not higher than that to private placement investors
   Questions
   (1)  Can the offering price of new shares to benefactors higher than an offering price of new shares to the general public ? 
   (2)  Can the offering price of new shares to existing shareholders higher than an offering price of new shares to private placement investors ? 
   (3)  Can the offering price of new shares to existing shareholders lower than an offering price of new shares to private placement investors ? 
   (4) Can the applicant offer new shares to advisors of the company ?
2. warnings in the registration statement and the prospectus
3. advertising of information not disclosed in the prospectus
4. period for offering of new shares to the public
5. no calling of meeting of shareholders for an interim period
6. compliance with its commitment given in the application or the registration statement and the draft prospectus
7. provision of the information within 1 year after the effective date

Filing of a registration statement and a draft prospectus

Offering of shares on a private placement basis
An offering with any of the following characteristics is exempted from filing a registration statement and a draft prospectus with the Office of the SEC:

1. an offering of shares to the general public or any persons at the aggregate value of not more than Baht 20 Million within a period of 12 months;
2. an offering of shares to not more than 35 specified investors  within a period of 12 months;
3. an offering of shares to institutional investors;
4. an offering of shares of which a seller and a purchaser are shareholders of an issuer and has no characteristics of the offering generally; or
5. an offering of new shares to creditors of the company under the business reorganization plan approved by the court under the bankruptcy law only in the case that the business reorganization plan provides that creditors shall receive new shares in place of payment of debts.

Offering of shares on a public offering basis
An offeror of securities shall file five sets of the registration statement  together with a draft prospectus for offering of security to the public with the Office of the SEC.
Disclosure of the information in a foreign country and in Thailand
Effectiveness of the registration statement and a draft prospectus

Reporting the result of the offering of securities

• Public Offering
• Private Placement

Requirements for the management
Application
Requirements for the management applies to an application for offering of securities including shares , bonds and warrants.

Prohibited Characteristics of the management of an issuer including

1. be ordered by  court under a receivership , a bankrupt, a incompetent or a quasi-incompetent
2. be in the black list of the SET
3. in the course of being accused or charged in a criminal case
4. be in the period prescribed by an order of an organisation empowered under foreign laws to be prohibited to be the management.
5. be adjudged by a final judgment in relation to committing an offence
6. breach of duties of loyalty for the best benefits of the business and shareholders
7. be inclined not to be in good faith or defraud others or participate or support such act of another person
8. do an unfair act or an act of taking advantage of investors or participate or support such act of another person
9. conceal the financial condition or the business operation of a listed company or intentionally state a false statement or disclose the truth in any material aspect
10. neglect to supervise the business as the management or the controlling person of a listed company

White List

The management of an issuer shall be a person whose name is inserted in the White List of the Office of the SEC.
Prohibited characteristics for 15 years
In case prohibited characteristics of the management occur for not exceeding 15 years from the date of notification of the name by a public company to the Office of the SEC, the Office of the SEC will refuse to show the name of the management in the White List.

Offering of New Bonds
Application and approval of offering of new bonds to the public
1.  Application
The requirement for an application applies to an offering of new bonds and new convertible bonds to the public.
An application for offering of bonds and approval shall be in accordance with rules, conditions and procedures prescribed by the notification of the SEC.

2.  Exemptions
The requirement on the application shall not be applicable to

• an offering of new bonds to investors outside Thailand
• short-terms bonds excluding bonds issued by a specific legal entity

Registration Statement and a Draft Prospectus
An applicant shall submit a registration statement and a draft prospectus for an offering of new bonds to the public except for

• an offering of new bonds to institutional investors
• an offering of new bonds to not more than 10 specific investors
• an offering of new bonds to creditors for the purpose of a debt restructuring
• an offering of new bonds which has been waived by the Office of the SEC

Offering of New Warrants
Application and approval of offering of new warrants and shares reserved to the public
An applicant shall submit an application for offering of new warrants and reserved shares to the public to the Office of the SEC.
Conditions after approval
The offering of new warrants shall be made within 6 months after the date of notification of the result of the approval
New warrants shall have the following characteristics

• has a fixed maturity which shall not exceed 10 years from the date of the issuance of warrants
• has reserved shares issued by the company
• price and exercise ration has been clearly determined
• has a period for expression of the last exercise of the right of not less than 15 days.

Registration Statement and a Draft Prospectus

An applicant shall submit a registration statement and a draft prospectus for an offering of new warrants to the public.

Reporting Requirement

Any person who acquires or disposes of 5% the total issued securities of any business shall report to the Office of the SEC within the next business day.

Tender Offer Requirement

Any person who acquires up to 25% or more of the total issued securities of the business shall make a tender offer for the purchase of securities unless exemptions are provided.

Amendments

Audit Committee

On June 20, 2006, it was proposed that

1. shareholding by a member of the audit committee should be reduced from 5% to 1% because 5% shareholding may have an impact on an independent opinion.
2. A member of the audit committee should not be in any listed company for more than 9 years because the person will be too familiar with such listed company.
3. At least 1 member of the audit committee should obtain a bachelor degree in accounting and shall experience in accounting or financial field for not less than 3 years of the latest 5 years.

Proposal on Shareholding

• Amendments to the definitions of related persons and beneficial shareholders
• New regulation on disclosure of 5% shareholding

Good Corporate Governance
Report on the Observance of Standards and Codes
To be prepared for Report on the Observance of Standards and Codes or ROSC s and Anti-Money Laundering and Combating of Financing of Terrorism : AM / CFT by IMF and World Bank in 2007, the Office of the SEC intends to amend its rules on measures for securities ( including asset management companies ) by relying upon guidelines under international standards and obtaining cooperation from the Association of Securities Companies and the Association of Investment management Companies to lay down practices.

Salient points of the Rules are as follows:

• Securities companies shall examine client due diligence (CDD) including a beneficiary and a controlling person.
• grouping customers in accordance with risk level in relation to money laundering and support of terrorism
• verifying information received from a customer with reliable resources
• continuously proceed at the time a customer opens an account until ceasing transactions with the company or closing an account an shall recording and keeping complete information

Implications of Certain Regulations issued and enforced by SEC

PLCA
Is there any limit of the minimum par value of each share ?
What is the different purpose on offering of new shares between a private company and a public company ?
What are restrictions on issuance of new shares ?
How are new bonds issued and offered under the Public Limited Company Act ?
What are the main issues on shareholding in a listed company ?
What are conflicts of interest ?
SEC
Private placement of new shares
What are not covered by the definition of “institutional investors” ?
An offering of new shares at a low price
What are loopholes for an offering of new shares at a low price ?
How is the market price calculated ?
An offering of new shares to the public
What are implications between offering of new shares and offering of existing shares ?
How should the issue on conflict of interest be solved ?
How is mechanism established to endure the best interest of the business ?
What are issues in relation to the information disclosed by a listed company ?
Reporting Requirement
What are exemption of reporting requirements ?
Tender Offer Requirement
What are the aggregate acquisition of securities to fall within the reporting requirement ?
 

Author: Partner Picharn Sukparangsee