PSE mulls new rule on IPO shares

The Philippine Stock Exchange is studying a proposal to require underwriters to fully guarantee the issuance of shares in initial public offerings (IPOs).

PSE president Ramon T. Garcia said this is part of the exchange's plans to liberalize listing rules, anchored on the relaxation of the income requirement and the chainlisting rule.

In his first media briefing since he assumed the presidency last May 1, the former head of the government's asset disposition arm said the changes in the rules would be slowly implemented along with safeguards to be put in place in order to protect the investing public.

"I'm in favor of the relaxation provided there are safeguards. The best is that there should be a full-fledged guaranty on the part of the underwriters of the issue and that they will take in whatever will not be absorbed by the market," Garcia said.

He added that the PSE listing committee has "touched base" with most of the underwriters -- foreign and local financial institutions -- to deliberate on the proposal. While these underwriters or lead issue managers would be taking in more risk, particularly on less attractive companies or during a bearish market, the prospective IPO issuers will likewise be put at a disadvantage since they will be incurring higher costs passed on by the underwrites.

The PSE has earlier proposed that it was considering alternatives in the long-standing three-year minimum profit track record as a pre-requisite for IPOs. Under the proposal, companies that may not be able to meet this requirement may still apply on the basis of their net tangible assets or market capitalization.

A waiver on the pre-tax profit track records for three consecutive years is particularly being directed on the period between 1998 and 2000, as a large number of companies are still recovering from the effects of the Asian financial crisis.

The exchange is likewise considering a modification of the ??? rule, which prohibits subsidiaries of listed companies to similarly float their shares if they account for a substantial portion of the parent firm's average profit. Instead of looking at their contribution, the PSE said it would look whether the assets and operations of the applicant firm are substantially the same as those of the existing listed issuer.

Garcia also said the PSE's plan to demutualize itself or transform from an exclusive member-broker-owned entity to a public company is being seriously laid out, possibly within his three-year term.

He added the demutualization plans had compelled the Securities and Exchange Commission to "soften their stand" on the divestment of the PSE's control over the clearing and settlement unit Securities Clearing Corp. of the Philippines (SCCP), where it currently holds a 51 percent stake. The SEC wants the PSE to reduce its interest in SCCP to 20 percent.

"I pointed out to them (SEC) that it (SCCP divestment) might prejudice our demutualization efforts," he said. The demutualization process takes into account the contribution of all subsidiaries and affiliates to determine the valuation of prospective issuers.