Backdoor listing for Smart needs Congress, NTC approval — official

Congress and the National Telecommunications Commission (NTC) will have to determine whether or not a plan by Smart Communications to acquire sister firm Pilipino Telephone Inc. (Piltel) will be sufficient compliance to a requirement for going public.

Under its congressional franchise, Smart is mandated to conduct an initial public offering (IPO) within five years after the start of its commercial operations. Those five years end in August this year. Non-compliance could result in a cancellation of the company’s telecommunications franchise, NTC commissioner Ronald Solis told The STAR.

In a previous interview, Smart chief executive officer Napoleon Nazareno, who is also president and CEO of the Philippine Long Distance Telephone Co., said Smart might request for a postponement until 2007.

There are speculations, however, that Smart might opt to take the backdoor listing route by offering to acquire the debts of Piltel. Smart has asked creditors of Piltel to exchange their loan exposure either for cash (in dollars or in pesos) or for Smart’s dollar denominated sovereign bonds.

Backdoor listing is a scheme in which a listed firm is acquired by businessmen or another corporation to avoid the stringent rules of going public.

Nazareno also pointed out that Smart can use the argument that its parent firm — PLDT — is already listed and therefore there is no need for a wholly owned subsidiary to undertake an IPO.

An official of the Securities and Exchange Commission said there is no law or rule prohibiting backdoor listings. However, the official noted that it would be better for Smart to undertake its own IPO given its good record of profitability. The listing of Smart shares, the SEC official said, would inject liquidity into the market.

According to NTC commissioner Ronald Solis, the telecommunications agency is mandated under Republic Act 7925, otherwise known as the Public Telecommunications Act, to make sure that the conditions under telecommunications franchises issued by Congress are enforced.

Among such conditions is the requirement for a telecommunications company to offer part of its equity to the public within five years after it goes into commercial operations. Failure to comply with this requirement may result in the cancellation of the company’s franchise, Solis said.

The NTC can also cause the cancellation of Smart’s certificate of public convenience and necessity (CPCN) which authorizes the company to offer cellular mobile telephone system (CMTS) service, he added. — With Zinnia dela Peña