Analysts mixed on move to relax minimum float

MANILA, Philippines — While gains are expected from the Philippine Stock Exchange Inc. (PSE)’s move to lower the minimum public float requirement for large initial public offerings (IPOs) to 15 percent under certain conditions, the scheme is also expected to have its share of drawbacks.

Analysts told The STAR that allowing companies with IPOs of over P5 billion to start with a lower public float has pros and cons.

Reyes Tacandong & Co. senior adviser Jonathan Ravelas said the rule could encourage more companies to go public, boosting market activity.

He said it also provides flexibility for large companies, especially in a market with liquidity challenges.

However, Ravelas said the move poses potential market control issues as a lower public float might lead to market control and transparency concerns.

Ravelas also said the rule is temporary and may need reassessment based on market conditions.

“Overall, this move could benefit the PSE in the short-term by attracting large IPOs, but monitoring its long-term impact on market stability will be important,” he said.

On top of encouraging more firms to go public and boosting market activity, Unicapital Securities head of research Wendy Estacio-Cruz said that relaxing the minimum float requirement also attracts big IPOs like that of GCash, which is reportedly aiming for at least $8 billion in valuation.

“The grace period also helps companies manage their shares strategically without overwhelming the market,” Estacio-Cruz said.

“However, a lower initial float could reduce liquidity and concentrate ownership, making price manipulation easier. There’s also the risk that companies won’t meet the 20 percent requirement later, which could hurt investor confidence and weaken market regulations,” she said.

For AP Securities research head Alfred Benjamin Garcia, the new rule incentivizes bigger companies to go public, especially if they have been putting off their offerings because of market conditions.

“If you would notice, we’ve only been getting smaller IPOs in recent years because the market has not been liquid enough to absorb large offerings. In that sense, it was a good effort from the PSE to try and stimulate the market for IPOs,” he said.

On the downside, Garcia said that it could set a bad precedent.

“The PSE has been fairly active in penalizing companies that fall below public float requirements and this might be viewed as the regulator bending the rules a little bit to accommodate big corporate interests,” he said.

PSE president and CEO Ramon Monzon said the exchange was able to secure approval from the Securities and Exchange Commission (SEC) to allow companies that want to offer P5 billion or more to offer less than the 20 percent public float requirement for IPOs.

According to Monzon, these companies can offer 15 percent, with the commitment that they will make a follow-on offering or a private placement in the next two or three years to comply with the 20-percent requirement.

He said  the exemption would make it easier for companies to decide to do an IPO.

The new rule will have a two-year window, which can be extended again after the two-year period.

“If there are companies that want to list, but for one reason or another are not able to comply with some of the requirements, we listen to them. And if we feel that their reason is reasonable, we start a dialogue with the SEC,” Monzon said.