PSE inks P2B PDS buyout deal

The Philippine Stock Exchange signed on Wednesday a deal to take over Philippine Dealing System Holdings Corp. (PDS Group) – moving one step closer to the much-awaited unification of the country’s capital market infrastructure – for around P2 billion.

The PSE went on a voluntary trading suspension on its own bourse on Wednesday pending the release of “material” information. Shares will resume trading at 9am on Thursday, March 9.

Sources from both the Bankers Association of the Philippines, PDS’ controlling shareholder, and the PSE confirmed to Inquirer that the deal to buy the BAP’s shares in PDS had been signed.

“Yes, it’s done,” a BAP source said.

“Term sheet between PSE and BAP (was) just signed,” a source from the PSE separately said. “Government approvals (would be) next hurdle.”

The deal still needs imprimatur from the Securities and Exchange Commission and the Philippine Competition Commission. For proponents, the much-awaited unification of the PSE and PDS is seen to boost volumes and unlock huge savings in maintaining and continuously enhancing financial market architecture.

The PSE source said the local bourse agreed to buy out the shares held by BAP and related shareholders for an enterprise value of P2 billion for 100 percent of PDS. It will also offer to buy out shareholders. The BAP group owns 28.9 percent of PDS while the PSE owns another 21 percent.

Aside from the PSE and BAP, other shareholders of PDS include Singapore Exchange Ltd. (which owns around 20 percent) as well as minority shareholders San Miguel Corp. (4 percent), Tata Consultancy Services (8 percent), Financial Executives Institute (3.1 percent) and Computer Technology Services (8 percent).

The latest valuation for PDS was lower than the P2.25 billion enterprise valuation made in 2015 when the PSE and BAP last attempted to work on the merger of the country’s capital market infrastructure. At that time, the old valuation was twice the book value of PDS.

PDS Group is the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp.

The slight decline in the latest valuation for PDS factored in the exclusion of some businesses with legal complications. For this deal to push through, the PSE is willing to give up the government securities over-the-counter trading business at PDEx, which is the subject of a lawsuit pending before the Supreme Court.

In 2013, a group led by former Congressman Luis Villafuerte challenged PDEx’s operation of the country’s sole fixed-income platform, accusing financial regulators of extending “special favors, undue advantages and unwarranted benefits” to create a “monopoly” in the government securities market.

While willing to give up the government securities business, industry sources said the PSE would instead work on creating a real exchange for corporate bonds.

As earlier reported, the PSE has assigned its president Hans Sicat to be the “chief integration officer.” Given Sicat’s background as an investment banker, he was deemed most suitable to take on this challenging task, PSE sources said.

This also means that Sicat will bow out after a six-year term as PSE president and chief executive officer (CEO) to take on this new role. He will also act as the interim CEO of PDS.

Inquirer earlier reported that Ramon Monzon, one of the PSE’s independent directors, is now being groomed to assume the post to be vacated by Sicat.

Monzon has been an independent director at PSE since May 2, 2015 and currently chairs the PSE’s audit committee. Having been “immersed” into the PSE in the last two years, he is seen suitable to be the next chief of the local bourse.

A certified public accountant, Monzon was a partner at SyCip Gorres Velayo & Co. He finished his BA degree major in Political Science at the Ateneo de Manila University and a BS degree major in Accounting fro the Manuel L. Quezon University. He holds an MBA degree from the University of Chicago.