PSE plans tighter rules for backdoor listing

The Philippine Stock Exchange has drafted new rules that will require companies listing through the backdoor—or by infusing new business into an existing publicly listed company—to launch an initial public offering (IPO) within a specific timeframe.

Inquirer sources said that the recent surge in trades on a number of third-liner issuers was in anticipation of a potential tightening of backdoor listing rules by the PSE.

A PSE source confirmed that the local exchange had indeed drafted refinements to the backdoor listing rules with the ultimate goal of all having all companies taking this route to be “properly introduced” to the public by requiring them to submit a prospectus and information memorandum.

The PSE has so far solicited two rounds of feedback to its proposed backdoor listing rules but is still finalizing this before submitting the final draft to the Securities and Exchange Commission for approval.

The source said retail investors lacked information about companies listing through the backdoor and were usually not included in follow-on offering deals that usually involved the sale of shares to selected institutional investors. Backdoor-listed companies are only required to submit a comprehensive corporate disclosure to discuss any major change in ownership.

Under the proposed rules, all companies listing through the backdoor will be required to prepare a prospectus and launch a public offering. The PSE has yet to finalize how long the leeway it will give to these companies but the indication so far is to give them a year to conduct the public offering. This is similar to the length of time currently given to companies which have listed by way of introduction and required by certain laws to conduct an initial public offering.

By making a public offering mandatory, the source said this would also address retail investors’ concern that they were being excluded from many plum follow-on equity deals in the market.

Based on the feedback from market participants, the PSE sees the lead time of one year “enough to come up with a prospectus.” The source said that even investment bankers who were handling a lot of these backdoor-listing deals shared the belief that their clients would not mind to make a more proper introduction to the market.

On the likely timetable, the source said the PSE was targeting to complete its fresh review of the backdoor-listing rules before the year ends. However, as the proposal would still undergo further consultations once submitted to the SEC, the “most optimistic” timetable to implement the new rules was the first quarter of 2015.

But if other market players would feel that the proposed rules were “too restrictive,” the PSE was willing to listen and consider further refinements, the source said.