Newsletter
Newly-promulgated Guidelines for Promotion of Private Equity Fund Investing in Industries
The National Development Council ("NDC") promulgated the Guidelines for Promotion of Private Equity Fund Investing in Industries ("Guidelines") on June 10, 2021 (Ref. No.: Fa- Chan-Zi-1101000360B). It is expected that the private sectors, including the insurance industry, would be motivated by the Guidelines to inject more capital into domestic private equity funds ("PEs") that invest in "important strategic industries", with the purpose of promoting industrial and economic developments.
Key points of the Guidelines are as follows:
1. PEs' fund size and professional requirements: (Point 2 of the Guidelines)
(1) The total capital amount of the company or the total amount of capital contribution of the limited partnership shall be more than NT$1 billion.
(2) The professional team for managing the PEs shall consist of more than three persons who possess professional knowledge of managing PEs or investment in industries, and have the capabilities to evaluate the potential target companies, make investment decisions, as well as conduct post-investment management.
2. Important strategic industries for investment by PEs: (Point 3 of the Guidelines)
The important strategic industries include industries spanning information and digital, cybersecurity, precision health, national defense and strategic industries, green technology, people's livelihood-related, strategic stockpiling and combat readiness, "Asia Silicon Valley", bio-tech and medical, smart mechanics, circular economy, new agriculture as well as forward-looking infrastructure planning, public construction, industries that require upgrading or transformation or other industries that the central competent authority recognizes as in line with the policy.
3. Qualifications of PEs: (Points 4 and 6 of the Guidelines)
PEs meeting the qualifications specified in the Guidelines may apply to the NDC for a "qualification letter" in order to raise funds from the private sector. The qualifications include:
(1) The total amount of investment committed by the shareholders or limited partners under the letter of intent for investment, or the company's paid-in capital or limited partnership's paid-in capital contribution, should reach more than 20% of the total capital amount or the total amount of agreed contribution;
(2) The management team should have experience in investing or managing equity funds, or have the experience related to the investment businesses as specified in the company's articles of association or in the limited partnership agreement;
(3) The proposed industrial area for the investment specified in the fundraising plan falls within the prescribed scope of "important strategic industries" and shall be reasonable and feasible;
(4) A complete investment decision-making mechanism, procedures and an internal investment review system; and
(5) A complete post-investment risk management mechanism, including reviewing the financial reports of the invested enterprise on a regular basis, updating fund investment account details and tracking investment performance.
4. Required documents for PEs to apply to the NDC for the "qualification letter": (Point 5 of the Guidelines), include:
(1) Basic information of the company or limited partnership (including articles of incorporation, relevant rosters, information regarding capital contribution, etc.);
(2) Resumes of the main management team or general partners;
(3) Management agreement or limited partnership agreement;
(4) Documents proving that it has a complete investment decision-making mechanism and a post-investment risk management mechanism);
(5) Fundraising plan and letter of intent for investment; and
(6) Other documents required by the regulator.
5. Examination and control measures for PEs: (Points 7, 9 and 12 of the Guidelines)
PEs shall submit the roster of shareholders/directors/supervisors (or partners for limited partnerships) as well as ultimate beneficial owners to the NDC for record within one month after completion of the fundraising. Also, within five years from the beginning of the investment by the PEs, the PEs shall submit a business report and a CPA audited annual financial report to the NDC within six months after the end of each fiscal year. The NDC may examine the aforementioned documents and materials when necessary.
Given the broad definition of the scope of "important strategic industries" as mentioned above, the Guidelines are expected to significantly expand the funding sources of PEs and actively promote the overall industrial development. Should you have any questions regarding PEs as well as the new Guidelines, please feel free to contact us.