Private placement was approved by proper authorities, says PSE

The Philippine Stock Exchange (PSE) defended yesterday the sale of 40 percent of its shares to institutional investors, pointing out that the deal had been approved by the Securities and Exchange Commission (SEC) and fully disclosed to its shareholders as well.

The private placement deal is being opposed by a group of stockbroker-shareholders due to alleged irregularities. The group said it is prepared to take legal action if the PSE refuses to nullify the recent sale of the shares to institutional investors.

The PSE also said that the private placement was supported by a majority vote of the board, citing that six out of the 10 directors in attendance at their meeting voted in favor of the transaction.

The bourse noted that while PSE director Marita Limlingan expressed reservations on some aspects of the private placement exercise, she eventually gave her nod on the deal.

"As there was no action to recall the resolution approving the exercise, the resolution remained valid. The board noted the manifestation of Limlingan," the PSE said.

Moreover, the PSE emphasized that the placement issue price of P119.50 per share was reviewed and noted as "reasonable" by the SEC before the shares were offered to the investors.

"The offer price was obtained by the underwriter, ATR-Kim Eng, in the placement process with the institutional investors. This means that the offer price is the maximum amount that institutional investors are willing to pay given the current market standing of the exchange," the PSE said.

The PSE also branded as unfair the allegations of a possible conflict of interest on the part of Kim Eng Capital. "The suggestion that the actions of the underwriter for the private placement were tainted with self-interest seems unfair if based on mere conjectures and pure speculation. The primary shares were independently offered to numerous prospective institutional investors including Kim Eng Investment Ltd. and KE Strategic Pte. Ltd on an arms-strength basis," the PSE said.

"Moreover, no less than the SEC approved the prospective investment of Kim Eng Investment Ltd. and KE Strategic Pte. Ltd. of 4.55 percent each," the PSE added.

The aggregate placement of the two Kim Eng entities, which were duly passed upon by the SEC, amounted to less than one-fourth of the total private placement issue, and was transacted at par with the three other institutional investors, the PSE pointed out.

The PSE also explained that the requirement of securing shareholders’ approval on the issuance of additional shares refers only to transactions resulting in the issuance of new voting shares amounting to at least 10 percent of the total issued and outstanding capital of the exchange.

"Since none of the investors participating in the private placement acquired more than 10 percent of the outstanding capital, the requirement on shareholders’ approval was not applied. The underwriter confirmed that the new investors were neither related nor acting in concert for purposes of breaching the 10 percent threshold requiring shareholder approval," the PSE said.

The PSE also clarified that the rule restricting the additional issuance of shares within six months from the date of listing only applies to companies that underwent an initial public offering.

The PSE board opted to undertake a private placement as it was argued to be the alternative that would secure the highest value for the shares in lieu of a public offering that would not be feasible or practical under the current circumstances, the exchange said.

"The possibility of undertaking a private placement for the unissued shares of the exchange was never withheld from either the shareholders or the public. The possibility of future offerings is contained in various sections of the PSE’s information memorandum issued during the listing exercise," the PSE added.

The PSE likewise noted that each investor was granted exemptive relief by the SEC as regards the percentage of their respective acquisition of the shares in excess of the five percent benchmark. The new investors are reputable organizations and sought for the value they add to the shares in their respective portfolios, the exchange said.

The private placement deal was meant to comply with the ownership limitation rule under the Securities Regulation Code which prohibits an individual or group from owning more than five percent of any exchange.

The PSE also cited the memorandum of understanding entered into by the PSE and SEC, which provides that the exchange may pursue "other methods" to comply with the ownership requirements prescribed in the SRC.

The MOU gives the PSE 12 months from listing date to make a public offering of its unissued shares.