New Rules Could Pave Way for More Listings

The Philippine Stock Exchange (PSE) expects more listings after the approval by the Securities and Exchange Commission (SEC) of its proposed amendments to the rules for listing by way of introduction (LBI).

PSE temporarily suspended the LBI rules last February 2010 to pave the way for a thorough review of the rules and address the issues raised, including the valuation, surrounding the companies that list by way of introduction.

The LBI Rules allow a company to apply for listing without the conduct of an initial public offering prior to the initial listing of the company’s securities on the PSE. The LBI Rules provide the specific circumstances where an LBI may be allowed. Such circumstances generally assumes that the applicant company’s securities for which listing is sought (i) would be of such an amount and would be so widely held, or, (ii) when listing of such securities in an exchange or public offering is mandated by law or by the SEC or other government agencies, in the exercise of their powers under the law.

“With the revival of our rules on listing by way of introduction, we are optimistic of more listings on the bourse. We are grateful for the SEC’s support of our enhanced rules as this provides issuers an alternative listing venue in order to spur more activity in the stock market,” PSE President and Chief Executive Officer Hans B. Sicat said. He also emphasized that the Guidelines for Fairness Opinions and Valuation Reports, one of the key features of the amended LBI Rules, is a step towards enhancing investor confidence and protection.

Under the amended LBI Rules, a company applying to list its securities by LBI shall determine the initial listing price of its securities on the listing date which is duly supported by a fairness opinion prepared by an independent and reputable firm. These include investment banks, financial advisory firms, and accounting firms duly registered or licensed by the SEC and accredited by the PSE. The Guidelines provide the criteria for the accreditation of these firms.

The amended LBI Rules also specify the applicable lock-up requirements on the securities of the applicant company. The lock-up is applicable to the applicant company’s existing shareholders who own at least 10% of the company’s issued and outstanding capital. The lock-up period starts on the listing date and the applicable period depends on the Board which the applicant company listed under – 180 days for First Board, 365 days for Second Board and two years for SME Board. However, a longer lock-up period applies to applicant companies that list by way of introduction pursuant to section 1(d), where listing of securities is mandated by law or by the SEC, and section 1(e), where public offering of securities is mandated by law or applicable regulations, of the amended LBI Rules. The lock-up period for these companies starts from the listing date of the securities until 180 days after the concerned company conducts the mandatory public offering.

The amended LBI Rules also include a provision on the Lifting of the Trading Band on the Listing Date. The trading band on the applicant company’s securities to be listed shall be lifted on the listing date in order to allow market forces to determine the price of the securities of the applicant company. After the listing date, the trading band shall be reinstated.

To ensure the compliance with the mandatory public offering requirement of applicant companies that list by way of introduction pursuant to section 1(d) and 1(e) of the LBI rules, the amended LBI Rules likewise provides that the Exchange shall impose any one or a combination of the following sanctions should the company fail to conduct the mandatory public offering within one (1) year from listing: (i) suspend the trading of the company’s securities; (ii) sanction the company by, among others, doubling the annual listing maintenance fees payable by the company; or (iii) subject to the provisions of the Corporation Code and the rules and regulations of the SEC, require the company to buy-back its securities within ninety (90) days from the lapse of the one-year period and delist the company’s securities.

Lastly, the amended LBI Rules prohibit a backdoor listing prior to the conduct of the mandatory public offering to prevent any abuse of the rules by availing of its benefits without a bona fide intention to carry out the company’s business plans.

The effectivity of the amended LBI Rules and the Guidelines will be announced as soon as the PSE receives the official signed copies of the approved rules.

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