PSE: Stricter backdoor-listing rules to benefit investors

The Philippine Stock Exchange (PSE) plans to strengthen its backdoor-listing rules in a bid to empower the investing public to properly scrutinize any equity deal that will shake up business or voting control in any publicly listed company.

Based on the new blueprint, 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.

A stock rights offering (SRO) will not be considered as a public offering for this purpose. Furthermore, secondary offering of shares under trading suspension or lock-up will not be allowed during such offering.

Reverse takeovers

Prior to the public offering, any private capital-raising activity—except for SRO, employee stock option plan and stock dividend declaration—will be prohibited unless it’s necessary to comply with the 20-percent minimum public float.

Shares acquired pursuant to the backdoor-listing deal will be locked up for six months after the public offering. Shares of those owning at least 10 percent will be locked up for one year from 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).”

The PSE’s consultation paper dated March 11 also said the new requirements sought to ensure that “minority stockholders and potential investors are fully and timely apprised of the backdoor listing, and that the public is given an opportunity to participate in the equity ownership of said companies.”

Based also on the proposal, any backdoor-listing deal 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 the 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 when 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.

Under the current backdoor-listing rules, a listed company subject of a backdoor listing is just required to disclose the details of the transaction through a comprehensive corporate disclosure and to comply with the suitability requirements for listing, 20-percent minimum public ownership requirement, and continuing listing requirements.

In addition, the listed company is required to submit a sworn secretary’s certificate confirming the stockholders’ approval of the transaction resulting in a backdoor listing.

The proposed amendments were benchmarked against the rules of Bursa Malaysia, Stock Exchange of Thailand, Singapore Exchange and Stock Exchange of Hong Kong, Monzon said.