PSE okays early warning system: Local bourse named 5th hottest in the world

MANILA, Philippines - The Philippine Stock Exchange (PSE) has firmed up an early warning system to alert the investing public of financial trouble in a listed firm.

The guidelines, which were finalized following a public consultation in March, were issued at a time when the local stock market is among the top performers in the world.

In a statement, the PSE said its board approved for submission to the Securities and Exchange Commission the proposed Rules for Companies under Financial Distress and Rules for Companies under Corporate Rehabilitation.

“The pre-rehabilitation guidelines are being proposed to give more information to the investing public about listed companies under financial distress and provide an effective exit mechanism for those who may wish to trade their shares of such companies experiencing financial distress,” said PSE president and CEO Hans B. Sicat.

“Both rules are expected to provide additional safeguards to minority stockholders of companies experiencing financial problems and those undergoing corporate rehabilitation,” PSE said.

The rules that aim to protect investors came in the midst of a bull run in the local bourse.

After closing at 5,812.73 last year, the PSE index has since risen 21.64 percent to 7,070.99 yesterday, allowing it to rank as the fifth hottest stock market in the world so far this year, according to CNN Money. The bellwether index closed at its 27th all-time high this year at 7,120.48 on April 22.

Prior to the guidelines, there was no exit mechanism for the minority stockholders of companies under rehabilitation.

Hence, investors are locked up with the company or are forced to sell at a large discount given the trading suspension on companies under rehabilitation.

Under the proposed rules, the troubled listed company is required to disclose major developments like the disposal of a major business, suspension of business operations for at least six months and negative stockholders equity for three consecutive years.

Distressed firms should also disclose any delay in the payment of loans amounting to 10 percent of its total assets and the issuance of an adverse auditor’s opinion on the financial statement.

PSE will designate firms in hot water as “company under financial distress” to allow the public to quickly discern the financial situation of the listed entity.

Within five days from being labelled as a distressed company, the listed firm should submit a business plan specifying the activities and timeline to remedy the situation.

“The PSE is not alone in adopting such rules as other stock markets in Asia have similar rules in place,” Sicat said.

The local bourse is aligning its rules with global best practices, Sicat added.

PSE surveyed numerous jurisdictions like the Stock Exchange of Thailand, Bursa Malaysia, Singapore Exchange, Hong Kong Exchanges and Clearing Ltd., and Korea Exchanges for the proposed rules.

Companies that fail to exit the financial distress stage after three years will be delisted from the local bourse, the PSE said.