VZCZCXRO5387
RR RUEHGH
DE RUEHIN #3603/01 2930855
ZNR UUUUU ZZH
R 200855Z OCT 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 2696
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3439
RUEHBJ/AMEMBASSY BEIJING 5809
RUEHUL/AMEMBASSY SEOUL 8182
RUEHGP/AMEMBASSY SINGAPORE 6655
RUEHKO/AMEMBASSY TOKYO 8139
RUEHML/AMEMBASSY MANILA 9822
RUEHJA/AMEMBASSY JAKARTA 3931
RUEHKL/AMEMBASSY KUALA LUMPUR 3575
RUEHHI/AMEMBASSY HANOI 3145
RUEHBY/AMEMBASSY CANBERRA 4351
RUEHWL/AMEMBASSY WELLINGTON 1580
RUEHHK/AMCONSUL HONG KONG 7024
RUEHGH/AMCONSUL SHANGHAI 0467
RUEHGZ/AMCONSUL GUANGZHOU 9646
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 003603 
 
SIPDIS 
 
SIPDIS, SENSITIVE BUT UNCLASSIFIED 
 
STATE PLEASE PASS AIT/W AND USTR 
STATE FOR EAP/TC, EAP/EP 
USTR FOR ALTBACH 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  New Taiwan Foreign Currency Bond Market 
 
REF: Taipei 2695 
 
SUMMARY 
------- 
 
¶1.  (SBU) Taiwan has established a foreign currency bond market and 
expects the first bond listings in October.  The move is another in 
a series of measures designed to better utilize Taiwan's surplus 
capital.  However, restrictions such as limits on PRC investment and 
the lack of incentives will limit the bond market's appeal and 
utility.  End summary. 
 
Bonds Denominated in Foreign Currency 
------------------------------------- 
 
¶2.  (U) In late August, the Taiwan Securities and Futures Bureau 
(SFB) announced rules for a new foreign currency bond market that 
will allow any company listed on the 19 foreign stock markets 
recognized by the FSB, foreign governments, and international 
organizations to list bonds denominated in U.S. dollars, Euros, 
Japanese yen and other currencies.  Local and foreign investors, 
except those from China, may trade bonds listed on the new market. 
This will help soak up and utilize Taiwan's huge capital surplus 
(reftel). 
 
¶3.  (SBU) Taiwan's Over-the-Counter (OTC) Center, which will operate 
the new market, says Deutsche Bank plans to issue US$300-500 million 
of bonds in October and several other foreign companies have 
expressed interest.  Over 20 underwriters have applied to the 
Foreign Exchange Department under Taiwan's Central Bank of China for 
foreign currency bond underwriting licenses.  The OTC Center 
estimates the total value of bonds listed will reach NT$100 billion 
(US$3.1 billion) by the end of 2009. 
 
Securities Transaction Taxes Waived 
----------------------------------- 
 
¶4.  (U) The securities transaction tax will be waived for 
transactions in this new market, as it is in the NT$ bond market. 
Individuals will be exempt from income tax on interest earned on 
foreign currency bonds issued by offshore companies because Taiwan's 
tax law exempts individual income earned from overseas sources. 
However, corporate entities must pay income tax on overseas income. 
Both individuals and corporate entities are subject to income tax on 
interest earned from bonds issued by domestic companies. 
 
¶5.  (SBU) Taiwan prohibits firms listed on the Taiwan Stock Exchange 
from investing more than 40% of their net worth in China.  This same 
restriction will also apply to companies listing on the foreign 
currency bond market.  Taiwan has also relatively strict listing 
requirements, such as a minimum credit rating, that foreign bond 
markets do not have.  These restrictions will dampen the enthusiasm 
of multinational corporations for issuing and listing bonds in 
Taiwan, even though listing and underwriting costs in Taiwan are 
less than in other bond markets. 
 
Bond Markets Very Competitive 
----------------------------- 
 
¶6.  (SBU) The Chief Financial Officer of a major U.S. company told 
AIT bond markets in East Asia are very competitive.  She said it was 
not uncommon for regulators to require use of some local financing 
in major investment projects.  Without any requirement to use local 
financing, she said, her company would continue to rely on cheaper 
capital from Japan's bond markets for its projects in Taiwan. 
 
 
TAIPEI 00003603  002 OF 002 
 
 
¶7.  (SBU) Although the appeal to companies may be limited, Taiwan's 
new bond market may be attractive to local individuals because the 
trading unit is only US$10,000 and individuals are exempt from 
Taiwan income tax on interest earnings. 
 
Comment 
------- 
 
¶8.  (SBU) Taiwan authorities need to find a way to utilize Taiwan's 
surplus capital, but are stymied by political factions opposed to 
facilitating investment in China.  While the recent establishment of 
a foreign currency bond market is a small step forward in 
internationalizing Taiwan's financial markets, the current 
regulations limit its appeal. 
 
Young