PSE encourages more SMEs to go public
MANILA, Philippines—Businesses are like babies. They need looking after from their hardworking parents, the entrepreneurs.
These entrepreneurs have to care for their “babies” when they aren’t doing well and sing their praises when they reach new heights.
And eventually, entrepreneurs will have to let their firms leave the nest and have prosperous lives of their own.
For parents, this usually means sending their sons and daughters to college. For entrepreneurs, this can mean an initial public offering (IPO).
Jose Antonio Villar, head of the Philippine Stock Exchange (PSE) Marketing Services Department, said some local entrepreneurs have discovered that going public has helped their companies grow faster than if they had remained private.
Despite this, many businessmen that are “in love” with their businesses still have reservations about selling part of their companies to total strangers.
“I know, many of you are thinking, ‘Why should I share my company?’” Villar said.
He acknowledged that many business owners are worried about sharing their company profits and control with outside investors.
But listing on the stock exchange is one way to get cheap capital needed to fund growth and expansion.
He thus urged the small business owners to conduct an IPO and take advantage of the strong capital flows that are expected to enter Asia as international fund managers make bets on the region’s growth prospects.
During the recent SME Forum organized by the PSE together with the Development Bank of the Philippines, Villar stressed that listing can be one of the most efficient ways to raise capital that can be used to expand a business.
“And because listed companies are subjected to international disclosure and corporate governance standards, your company can gain credibility,” Villar said.
“This opens endless possibilities for your company,” he added, noting that this allows business owners to hire the best people. “The brightest people are attracted to work for listed companies.”
Being listed also improves a company’s access to bank loans. Villar said not only will being able to comply with strict disclosure rules look better when talking to banks, but shares can be used as collateral when borrowing money.
Being listed also allows a company’s management to give the employees stock options, making even rank-and-file workers investors in the company.
“This will make your employees work harder because they will also benefit from the company’s good performance,” Villar said.
Owning a listed company also makes it easier for entrepreneurs to plan their estates to be passed on to their kin. “If you pass on shares in a company, the tax is only half a percentage point, and that’s legal. It’s a no brainer,” Villar said.
Also, going public almost always guarantees that a company’s net value increases exponentially.
For instance, restaurant holding company Pancake House Inc. was valued at P10 million before going public. But after the price of its shares rose when it went public, the company’s value reached as much as P1.9 billion.
Information technology firm Ripple E-Business International, meanwhile, was valued at P5 million before going public.
The company is now worth over P65 million, and one of its biggest investors was US-based tech giant International Business Machines (IBM).
Another small company that saw its value soar after going public was independent fuel producer Phoenix Petroleum Philippines Inc.
From a value of P133 million, Phoenix, which is still expanding, saw its market capitalization rise to over P5 billion when it sold shares via the local bourse. This made its owner, 37-year-old Dennis Uy, a certified billionaire.
More recently, civil engineers Michael Cosiquien and Edgar Saavedra, also joined an extremely short list of billionaires in the country below 40 years old after putting their construction company, Megawide Construction Corp., through an IPO.
From a value of P327 million prior to its listing, Megawide is now worth P7.1 billion, with the country’s biggest real-estate developer SM Development Corp. as a major investor.
Phoenix’s Uy, who shared his experience in listing his company at the same forum, said listing has allowed the company to transform from a small gasoline station chain in Davao into a nationwide brand.
“None of this would have happened if I had not listed the company,” Uy said. He said the additional funds allowed the company to put up additional stations around the country. “The benefits of listing far outweigh the disadvantages, especially for small companies that need capital.”
He added that being listed also helped instill discipline in the company’s management. Because of this, he said one of Phoenix’s major investors is the state-run pension fund for private employees, the Social Security System.
“The only downside is that we cannot stop growing,” Uy said.