PSE acquiring 61.9 percent of PDS for P2.3 billion

MANILA, Philippines — The Philippine Stock Exchange Inc. (PSE) has come closer to its dream of integrating the local bourse with the fixed income exchange.

The PSE signed agreements with shareholders of the Philippine Dealing System Holdings Corp. (PDS) to acquire 61.92 percent of the holding company that owns the Philippine Dealing & Exchange Corp. (PDEx) for P2.32 billion.

With the addition of its existing 20.98 percent stake, the PSE will own 82.9 percent of PDS upon completion of the transactions, which are subject to the customary closing conditions, including corporate approvals and delivery of closing certificates.

“These signed agreements bring us a step closer to achieving our objective of consolidating the equities and fixed income exchanges and realizing the synergies and efficiencies from this unified setup,” PSE president and CEO Ramon Monzon said.

“This will also allow us to be instrumental in the growth and development of the Philippine capital market with the introduction of new products for various stakeholders as well as the implementation of risk management processes,” Monzon said.

Under the transactions, PSE will be purchasing 3.87 million PDS shares at P600 apiece for a total of P2.32 billion. The transaction cost was based on the P3.75 billion enterprise value of PDS.

Among the agreements signed was the term sheet with the Bankers Association of the Philippines for its shares and those owned by BAP Data Exchange Inc. and certain member-banks for an equivalent of 28.83 percent of PDS.

A term sheet was likewise inked with Mizuho Bank Ltd. for its 0.08-percent stake.

The PSE also signed share purchase agreements with five other PDS shareholders. PSE will acquire Singapore Exchange Ltd.’s 20-percent stake, Whistler Technologies Inc.’s eight percent, San Miguel Corp.’s four percent, Investment House Association of the Philippines’ 0.65 percent and Golden Astra Capital Inc.’s 0.36-percent shareholding in PDS.

According to the PSE, the transactions are part of its plan to acquire up to 100 percent of PDS to align the country’s capital market with other markets globally which have a single exchange structure for fixed income and equities.

It said the transaction would result in a vertical integration of the depository function within the same group that operates trading, clearing and settlement of listed securities.

By integrating the equities and fixed income exchanges, the PSE aims to provide investors with a facility to trade fixed income, equities and other products in a unified marketplace as well as a single venue in the country for listing and capital-raising to make it easier for companies to tap both equities and debt markets.

The PSE said it would also enable the exchange to develop new products and services in light of the operational efficiencies and synergies expected to result from the vertical integration.

It will also provide a more efficient integrated market surveillance and monitoring for both equities and fixed income markets for investor protection.

The PDS is the holding company that owns the PDEx, the operator of the fixed income exchange. It also owns the Philippine Depository & Trust Corp., which serves as the depository for equities and fixed income securities.

“From a corporate standpoint, maintaining the business operations of both the PSE and PDS while reducing operational costs through synergies can result in greater business scalability and profitability. As the two companies have highly similar and integrated functions, there should be synergies that could be realized from an infrastructure standpoint, particularly on the technology side,” the PSE said.

“For the market, the single exchange setup helps achieve efficiencies, reduce risks and facilitate the development of new products,” it said.

In December last year, the Securities and Exchange Commission (SEC) approved the PSE’s application for exemptive relief in its acquisition of additional shares in the PDS Group.

The commission en banc allowed the PSE to exceed the mandatory limit of 20 percent on ownership and voting rights in an exchange by an individual or an industry, granting it leeway to own up to 100 percent of the PDS Group, subject to certain conditions.

Monzon earlier said that upon securing the regulatory approval from the SEC, the PSE started to engage the shareholders of PDS.

China Bank Capital Corp. managing director Juan Paolo Colet said that an integrated bourse would enable the PSE to offer efficient listing and trading solutions across a variety of securities, including equities, bonds and, eventually, options.

Colet said that the integration hopefully leads to a deeper and more active secondary market for bonds and other fixed income instruments.