PSE, bond bourse revive merger talks

MANILA, Philippines–The Philippine Stock Exchange (PSE) and other shareholders of Philippine Dealing Systems Holdings Corp. (PDS) have rekindled discussions on the merger of the country’s capital market infrastructure.

Inquirer sources said the PSE has offered to acquire a controlling interest in the PDS group based on an estimated enterprise value of about P2 billion, subject to the resolution of or protection from a pending lawsuit challenging the operations of PDS’ fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx) before the Supreme Court.

An offer has been made for the PSE to buy, in cash or in its shares of stocks, the 80 percent of shares in PDS Group that it did not own yet, several sources confirmed. The PSE is already an existing shareholder of the PDS Group with a 20-percent stake.

“Negotiations are ongoing but there’s no final agreement yet,” said one capital market source familiar with the discussions.

Given the pending legal question on PDEx, the source said discussions were ongoing toward the possibility of the sellers issuing a “warranty” on the PDS shares to protect the buyer from legal liabilities.

Based on an enterprise value of P2 billion for 100 percent of the PDS Group, this suggested that the PSE would pay around P1.6 billion if all other shareholder groups owning 80 percent would agree to sell their shares.

“The negotiations are still open to cash or shares,” another source said, noting that everything would still be conditional to what would happen to the legal challenge on PDEx.

Two other big shareholder groups in PDS—the Bankers Association of the Philippines (BAP) and Singapore Exchange Ltd. (SGX), which collectively own 45 percent of PDS—earlier already agreed to discuss the sale of their stake to PSE. Discussions, however, were disrupted by a case filed at the Supreme Court accusing financial regulators, PDS and the BAP of conspiring to create a “monopoly” in the bond market.

Two years ago, the PSE already obtained approval to increase its authorized capital to 120 million shares from 97.8 million with a par value of P1 each, giving the bourse leeway to use its stocks as currency to acquire the local fixed income trading platform.

While awaiting the final outcome of the legal question on PDEx, proponents seek to get the framework ready for the consolidation of stock and bond trading platforms in the country. A unification, which is strongly backed by President Aquino’s economic managers, is seen boosting volumes and unlocking huge savings in maintaining and continuously enhancing financial market architecture.

Among others, the petition filed at the Supreme Court called for the issuance of a temporary restraining order enjoining financial regulators, PDS and BAP from carrying out actions and regulations allegedly restricting government securities trading activities and other over-the-counter (OTC) transactions.

It called for a halt to various orders, circulars and other issuances from public respondents as well as for a prohibition on the BAP from “compelling, persuading or exerting any undue influence upon its member banks tending to coerce, convince or induce them to use exclusively the PDEx trading system in government securities.” Former senator Aquilino Pimentel Jr., former congressman Luis Villafuerte, former budget secretary Benjamin Diokno and former national treasurers Norma Lasala and Caridad Valdehuesa filed the Supreme Court petition against PDEx.