Listing by way of introduction
Last September 12, we saw the initial listing of Philex Petroleum Corp. shares under the “Second Board of the Exchange” through what is called “Listing by Way of Introduction.”
The listing of PXP shares was made through Article III, Part H, Section 1(b), under the “Amended Rules on Listing by Way of Introduction” (Amended LBI Rules) of the Philippine Stock Exchange.
It involved the listing of 1.7 billion shares with the par value of P1 under the trading symbol of “PXP” at the “Mining & Oil” sector and “Oil” subsector, with the “indicative reference opening price of P1.20” a share.
PXP is an affiliate of listed Philex Mining Corp. (PX), whose business activities are divided into two main groupings, namely the mining business under its umbrella and the oil and gas business now under PXP.
Highlights
LBI is not a new method for listing application. It has been one of the listing standards long availed of in the local bourse by securities issuers.
Due to some questions encountered in the past about its sound application, it was suspended for further review by the Securities and Exchange Commission (SEC) on Feb. 18, 2010, through Memorandum No. 2010-0072.
On March 3 of this year, however, the SEC issued a new memorandum on the subject, the content of which now forms part of the revised rule of the Philippine Stock Exchange (PSE) on listing by way of introduction. It was formally implemented on March 24, on which date it effectively lifted the suspension of the LBI.
LBI allows a company to apply for listing without the conduct of an initial public offering (IPO) prior to the initial listing of the company’s shares on the trading board of the bourse.
In the words of the amended LBI rules, this “applies to an application for listing of securities that are already issued or securities that will be issued upon listing, where no public offering will be undertaken because the securities would be of such an amount and would be so widely held that their adequate marketability when listed can be assumed, or when listing in an exchange or public offering is mandated by law or by the Securities and Exchange Commission or other government agencies, in the exercise of their powers under the law.”
At present, the listing of securities by way of introduction can be made in any of the five following instances:
n where the securities sought for listing are already listed or traded or will simultaneously be listed on another stock exchange or, subject to the approval of the Exchange, are listed on another trading market;
n where the securities of an unlisted issuer are distributed by way of property dividend by a listed issuer to shareholders of that listed issuer;
n where a holding company is formed and its securities are issued in exchange for the securities of one or more listed issuer or issuers is withdrawn at the same time the securities of the issuer are listed;
n where listing of securities in an exchange is mandated by law or by the SEC, in the exercise of its powers under the Securities Regulation Code; and
n where public offering of securities is mandated by law or applicable regulations; provided that the applicant company secures a clearance from the relevant agency stating that such agency does not object to the listing by way of introduction of the securities of the company; provided further that a company which is considered as a ‘closely held corporation’ as such term is defined under Section 127 (B) of the National Internal Revenue Code of 1997, is NOT qualified to list by way of introduction under this subsection (e). A subsidiary company that is qualified to list under subsection (e) hereof cannot list its holding company which does not meet the requirements of this section.
PXP was listed on the basis of the second envisioned circumstance as stated above.
To recall, the Board of Directors of PX approved last May 25 the distribution of a portion of its shareholdings in PXP as property dividends to PX shareholders of record as of June 8, 2011. It entitled PX shareholders to one PXP share for every eight PX shares held as of the said record date and distributed last August 18.
This act increased the number of PXP stockholders to 37,084 from the original 11 stockholders that included PX as corporate shareholder. In the process, too, about 10,718 resultant stockholders held at least 1,000 shares or one board lot each of PXP shares, accordingly.
The above measure allowed PXP to apply for initial listing with the PSE under the above stated section of the amended rules on listing by way of introduction.
And in compliance with the added rules on listing by way of introduction, Philex Mining, as a major shareholder of PXP, was “required not to sell, assign, or in any manner dispose of the Company’s (meaning, the PXP shares) shares for a period of three hundred sixty-five (365) calendar days from the listing date, or on Sept. 12, 2011 up to Sept. 11, 2012.”
This meant that PX, whose shareholdings after the property dividend distribution stood at 64.79 percent, or 1,101,373,946 shares to be exact, won’t be able to trade a single share of its stockholdings in PXP not till after Sept. 11, 2012.
Like what happened on the listing date last September 12, the applicable “trading band” was suspended. This was supposedly to allow market forces to work and let the share price of PXP find or seek its own level in the market place.
Bottom-line spin
Lisitng by way of introduction is certainly an efficient way of listing one’s shares of stock in the stock market. It dispenses with the otherwise cumbersome and time-consuming process of a public offering. The investing public is as well assured of a fair opinion on its valuation that is usually obtained by a thorough due-diligence review in a public offering. Its success is further assured by a number of sound post-listing requirements that safeguard the integrity of the issue.
But no matter how well-crafted the LBI rule is in its amended form today, like any sensible market policy it is still vulnerable to manipulation and abuse by the vagaries of market forces.
One classic example is the current market price of PXP. A good friend who is an oil expert could not just understand—as he said—“the excitement over PXP?” “Except for its SC 72 Reed Bank interest, the other assets of PXP are so-so or marginal,” he added.
What I can see in this situation is that, its market price is currently eschewed by the fact that 64.79 percent of its shares is owned by only one stockholder, and its “reasonable degree of free float” of about 35 percent is held by very small stockholders who do not have any significant impact in the current market play that would determine the true level of value.
The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.
