19 firms told to act on capital deficiency

The Philippine Stock Exchange (PSE) has ordered 19 publicly-listed corporations to submit, within two months, a plan on how they intend to bring their stockholders’ equity from negative to positive. The PSE said the plan should detail the activities that listed companies will undertake, together with their corresponding timetable, to correct their capital deficiency.

The 19 firms are AGP Industrial Corp., APC Group Inc., Atlas Consolidated Mining & Development Corp., Ebecom Holdings Inc., Filsyn Corp., First E-Bank Corp., Fortune Cement Corp., Global Equities Inc., Magnum Holdings Inc., Music Corp., Pilipino Telephone Corp., Prime Orion Philippines Inc., Primetown Property Group Inc., Sanitary Wares Manufacturing Corp., Semirara Mining Corp., UEM Development Phils., United Paragon Mining Corp., Universal Rightfield Property Holdings Inc., and Zeus Holdings Inc.

According to the PSE, failure by a company to implement its plan within one year after the submission of the same would, after undergoing required procedures, subject the firm to delisting procedures.

The PSE is considering the delisting of shares of dormant companies to cleanse the quality of stocks listed at the exchange and curb the practise of backdoor listings.

Backdoor listing is a faster alternative to the traditional route of going public due to the exorbitant costs of staging an initial public offering. Under this scheme, inactive listed firms are acquired to evade the stringent requirements of going public.

The PSE, however, is yet to determine which companies will be considered dormant or qualified for delisting.

The PSE said once these factors are cleared, it will move to delist the dormant companies with the approval of the Securities and Exchange Commission (SEC).

Previously, the PSE has tolerated backdoor listings because it helped revive moribund companies. However, the process has been used by some groups as a vehicle for easy entry into the stock market, since backdoor listings do not require numerous documents and expensive fees as initial public offerings.

The PSE has the option to delist a company if the firm has repeatedly failed to attract liquidity and/or enough interest over a considerable period of time.

In determining sufficiency of liquidity and interest in the listed firm, the exchange will consider the historical volume as well as the historical bid and seek quotes for the shares as compared to those of other listed firms in the same industry.

The exchange may also delist a company if its stockholders equity has become negative and if it fails to comply with the continuing listing requirements of the bourse. Other grounds for delisting include liquidation, dissolution or the firm’s inability to continue with its business operations, cancellation or revocation of its securities registration with the SEC and repeated violations of disclosure rules or reportorial requirements.

However, there are disadvantages to delisting shares of non-performing stocks, as the investments of some small shareholders who were not able to unload their shares in the market may be locked into the company for a long time.