Coyiuto group mulls legal action on sale of PSE shares

A group of stockbrokers allied with businessman-stockbroker Robert Coyiuto Jr. is threatening to go to court if the Philippine Stock Exchange (PSE) refuses to nullify the recent private placement of shares to institutional investors.

In a letter to the PSE board, stockbrokers Ismael G. Cruz of IGC Securities, Filomeno G. Francisco of AB Capital Securities Inc. and Edgardo Guevara of IGC Securities said the recent sale via private placement of 40 percent of the unissued shares of the exchange was consummated in undue haste and lack of transparency which are not in consonance with the principles of good governance.

"We are constrained to put you on notice that unless the board takes the appropriate actions we shall immediately take legal action to protect and preserve the interest of the stockholders and the PSE," the group said.

The brokers also alleged that the private placement violated the pre-emptive rights of existing stockholders under the Corporation Code of the Securities Regulation Code prohibiting any individual or industry from owning more than five percent of an exchange, and the PSE’s own rules on additional listing of shares.

The rule on additional listing of shares provides that a transaction such as a private placement conducted by a listed company is subject to the approval of the stockholders of the company. The group pointed out that this rule was duly approved by the PSE board and the Securities and Exchange Commission (SEC) and took effect on Sept. 12, 2003.

The group claimed that the offer price of P119.50 per share was extremely low and grossly disadvantageous to existing PSE shareholders. Compared to transactions at the time of placement of between P195 to P200 per share, the subject price of P119.50 per share represented only a small premium over its book value of P105 per share and did not give value to the PSE franchise and its property assets.

The group likewise objected at the PSE board’s decision to declare a cash dividend of P16 per share immediately after the subscription of the new shares, thus benefitting the incoming stockholders.

The shares were sold to state pension fund Government Service Insurance System, PLDT Beneficial Trust Fund, San Miguel Corp. Retirement Fund, Kim Eng Investment Ltd., and KE Strategic Pte. Ltd. for P733 million.

The group also alleged that in the first place, the PSE board never passed the resolution supposedly approving the proposal of financial adviser ATR-Kim Eng to offer the PSE shares to strategic investors through private placement at P119.50 per share.

They said the PSE board did not obtain the number of votes necessary for approval. During the said meeting, only five out of the 10 PSE directors present voted for the proposal. They were PSE president Cayetano Paderanga Jr., Enrique Aboitiz, Peter Favila, Francisco Lim and Gregorio Kilayko.

PSE director Marita Limlingan voted against the proposal while former PSE president Ernest Leung, Rodolfo Cruz and Tomas Apacible abstained.

"Even if that resolution had been approved, the board approval would be legally incomplete because under our by-laws the prior approval of this act of the board of directors by 2/3 of the stockholders is necessary as it is a major contract exceeding 15 percent of the assets of the corporation," the stockbrokers said.

The group also took note of the possible "conflict of interest" situation on the part of ATR-Kim Eng Capital Partners Inc., the financial advisor of the PSE who did the valuation and arranged the private placements.

Considering their role as financial advisor, ATR-Kim Eng should not have sold shares to any of its affiliated or associated companies. This is exacerbated by the fact that the transaction price is being labeled extremely low and grossly disadvantageous to PSE stockholders.

As a demutualized organization, the PSE is mandated by the SRC to divest its shares to institutional groups or private investors.