PSE to tighten backdoor – listing rules

MANILA, Philippines – The Philippine Stock Exchange (PSE) plans to overhaul its backdoor-listing rules to ensure that minority shareholders are property apprised and given the opportunity to participate in the equity deal.

Based a consultation paper dated March 11, the PSE seeks to redefine the triggers for backdoor-listing, require more stringent corporate approvals and mandate a public offering of at least 10 percent of the subject company’s shares within one year from the closing of the deal. 

 Shares acquired pursuant to the backdoor-listing deal will be locked up for six months after the public offering. Shares of stockholders owning at least 10 percent will be locked up for one year from closing or completion of the transaction.

 In drafting this new framework, PSE president Ramon Monzon said “the exchange seeks to strengthen the regulation of reverse takeovers or transactions leading to the backdoor listing of unlisted companies or businesses, given that these companies or businesses do not go through the initial listing process and are not subjected to the same level of scrutiny applied to companies conducting an IPO (initial public offering).”

 Based on the proposal, the transaction must be approved by at least 2/3 of the entire membership of the board, including the majority – but not less than two – of its independent directors, on top of approval from two-thirds of all shareholders.

 Where a transaction results in change of control of the listed company but the new controlling stockholder invokes exemptions from a tender offer, the new controlling stockholder or the listed company must obtain confirmation from the Securities and Exchange Commission that the mandatory tender offer requirement is not applicable.

 Backdoor-listing is deemed to occur if the listed company, directly or indirectly, acquires the shares or assets of an unlisted company or person or group of persons or vice versa.

The same will be invoked if a transaction or series of transactions will result in change in control or de facto control of the listed company, change in composition of the board or a substantial change in business.

 The transaction will be considered backdoor listing if the acquisition of assets takes place within 24 months of such unlisted company, person or group of persons gaining control or acquiring a seat in the board of the listed company, which was then not regarded as backdoor listing.

Change in control takes place when the acquirer obtains more than 50 percent of the voting power while de facto change in control happens if the acquirer becomes the single largest substantial shareholder after the transaction.

 If the revenues attributable to the new business or assets infused by the acquirer are equivalent to more than 50 percent of the listed company’s revenues, this will be considered as a substantial change in business. The same will be invoked if the value of the new business or assets acquired is more than 50 percent of the total assets of the listed company.

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