Stock market debutant Figaro Coffee Group Inc. (FCG) has put in place a stabilization fund to support stock prices, which is equivalent to 10 percent of its P767.39-million initial public offering (IPO) that will be launched next week.
FCG advised the Philippine Stock Exchange (PSE) and the Securities and Exchange Commission (SEC) it intended to grant PNB Securities Inc. the option to purchase up to 93.02 million additional common shares at the offer price of 75 centavos per share within a 30-day period from the company’s listing on Jan. 24.
FCG and its principal shareholder Camerton Inc. of businessman Jerry Liu entered into an agreement with PNB Securities, the stabilizing agent, to utilize these additional option shares to cover excess demand under the institutional tranche of the offering.
The option shares are composed of primary shares to be issued by FCG pursuant to the PSE’s listing rules.The stabilization fund seeks to temper the risk of the stock debutant’s stock prices falling off a cliff—like what had happened to Medilines Distributors Inc. late last year—at least within the first 30 days of listing and trading on the local bourse.
Initial stabilizing action should be below the IPO price, the SEC said.
Second IPO of the year
The SEC, for its part, directed FCG and PNB Securities to submit a report, not later than 15 days from closing date of the stabilization period, detailing the number of shares and to whom the option shares had been distributed.
FCG, the second company to brave the stock market this year after mass housing developer Haus Talk Inc., will offer 930.166 million primary common shares plus about 93.02 million in additional shares for the overallotment option from Jan. 10 to 14.
If PNB Securities would fully exercise the overallotment option because no price stabilization activity had been conducted during the option period, the stabilizing agent should purchase the shares at the offer price.
In the event that the stabilizing agent exercises the overallotment option only in part, it should purchase the corresponding shares at the offer price and deliver these shares as well as the shares purchased from the market to Camerton via a cross on PSE.
Deliver shares
If the stabilizing agent would not exercise the overallotment option, it should deliver the shares purchased from the market to Camerton as a whole via a cross on PSE.
If the stabilizing agent commences any of these transactions, it may discontinue them at any time.
“After the initial stabilizing action and if there has not been an independent trade in the market at a higher price than the initial stabilization trade, the subsequent trade shall be below the initial stabilizing price,” the advisory stated.
If there are independent trades in the market at a higher price than the initial stabilization trade, the subsequent trade should be at whichever is lower: the stabilizing action price or the independent trade price.