Proposed listing rules may need more investor safeguards

proposed listing rules may need more investor safeguards - Proposed listing rules may need more investor safeguards
PSE Trading Floor 2 - Proposed listing rules may need more investor safeguards
The Philippine Stock Exchange, Inc. has proposed amendments to the listing rules on its main board and small, medium and emerging board. — COURTESY OF PHILIPPINE STOCK EXCHANGE, INC.

By Denise A. Valdez, Senior Reporter

STOCK BROKERS welcomed the efforts of the Philippine Stock Exchange, Inc. (PSE) to ease listing rules to allow more companies to raise capital through the bourse, but warned of potential risks from relaxing some safeguards.

The bourse operator has proposed amendments to the listing rules on the PSE main board and small, medium and emerging (SME) board.

For listing on the main board, the PSE is proposing to remove the P500-million minimum market capitalization requirement, and to focus on a three-year cumulative net income instead of EBITDA (earnings before interest, taxes, depreciation and amortization). It also suggested that companies have a cumulative net income of P75 million in the past three years, a net income of P50 million in the past year before listing, as well as a minimum total stockholders’ equity of P500 million.

For listing on the SME board, the PSE is seeking to remove the requirement for a positive EBITDA in at least two of the past three years before listing. It will only keep requiring a three-year cumulative EBITDA of at least P15 million, and proposed as an alternative — to look at a company’s three-year cumulative operating revenue that should hit P150 million and grow at least 20% in the past two years.

The PSE is also proposing to remove the P100-million minimum authorized capital stock requirement and replace it with a P25-million paid-up capital to list on the SME board.

These measures are intended to increase the listings on the local bourse to become at par with its regional peers, the PSE said. It wants to encourage small and medium-sized enterprises to raise capital through the stock market.

AAA Southeast Equities, Inc. Research Head Christopher John Mangun said the rules would benefit small businesses and some startups.

“The previous listing requirements have always favored big companies. The new rules will allow smaller companies by capitalization that have attained profitability to list on the main board,” he said in an e-mail.

“The new changes will not only encourage more companies to go public but will also open different industry sectors to investors that have not been available before,” he added.

However, some flagged possible risks from the relaxed listing rules.

Jervin S. de Celis, a trader at Timson Securities, Inc. said that by making it easier for small businesses to list, there may be a higher risk that they would delist when challenged, putting investors on the line.

“While the lenient listing rule… will give investors more options where to place their money, I think imposing stricter rules to protect the investing public in this lenient listing requirements should also be discussed,” Mr. De Celis said in a message.

“As we all know, some companies struggle to earn…. When the tides change and some companies delist or are suspended and delisted by the PSE during rare instances, how are investors going to be protected?” he added.

Japhet Louis O. Tantiangco, a senior research analyst at Philstocks Financial, Inc., said it’s important to measure a company’s EBITDA, apart from only looking at net income and cumulative operating revenues.

“We believe that the EBITDA should still be highly considered since it is a metric that helps us see the profitability of the company based on its core operations,” Mr. Tantiangco said in a message.

“There’s the possibility that a company has posted strong EBITDA in the first of the three years but posted losses in the succeeding two. If the cumulative (EBITDA) of the three years still meets P15 million, it would still pass the requirement despite the poor trend,” he added.

Aside from the relaxed requirements, the PSE is pushing a “big brother” program under the new rules. Through this program, companies that do not meet the listing requirements but have a “significant growth potential” may list on the SME board through a sponsor, such as investment houses that will guide them in their public offering phase until three years after listing.

“This big brother model is adopted by various bourses in the region and we think that this will also work in our market…. With the sponsor model, we hope to help and support more SMEs grow their businesses,” PSE President and CEO Ramon S. Monzon said in a statement on Thursday.

It is also offering relief for listings to be filed in 2021 and 2022 by checking only the profitability of a company during any two fiscal years in its three most recent fiscal years, and exclude the year when it felt the coronavirus impact.

“By easing certain requirements, we hope to make a significant contribution to the country’s economic recovery process,” Mr. Monzon said.

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