BIZ BUZZ: Solving the Holcim conundrum
With the local stock market blindsided by the trading suspension on Holcim Philippines (and some other firms), a petition is now circulating among stock brokers urging the Philippine Stock Exchange (PSE) to find ways to look after the interest of the minority shareholders.
One proposal being floated is for the PSE to require listed companies falling below the public ownership requirement to make a tender offer before suspending trades on them.
On the Holcim issue, the PSE is constrained by a Bureau of Internal Revenue (BIR) regulation circa 2012 that slapped capital gains (of between 5 and 10 percent) on sale of shares of listed companies that fall below the minimum public ownership requirement (in lieu of a preferential tax rate).
In short, it is the BIR that has the sole power to exempt Holcim from this regulation.
From what we gather, Holcim seems to have warmed up to calls for it to seek such BIR exemption and that an announcement may soon be made to extend the Aug. 30 tender offer deadline.
Recall that in 2018, San Miguel Food and Beverage (SMFB) obtained such an exemption in relation to the share-swap deal when parent conglomerate San Miguel Corp. consolidated its traditional consumer businesses.
Article continues after this advertisementTrading on SMFB had likewise been suspended, but PSE lifted the trading suspension as soon as BIR issued the exemption.
Article continues after this advertisementBecause it is the issuer of these securities, the burden is on Holcim itself to convince BIR. We hear that the PSE is also willing to write to the BIR to support the petition but Holcim needs to make the first move.
The math could make it worthwhile for BIR to consider the exemption.
If Holcim shares are crossed at PSE, BIR collects: 0.006 percent transaction tax on value traded (At 325 million shares, this could be an easy P10 million), plus 12 percent value added tax on broker commissions. And if brokers and individuals make money, it can collect more income taxes.
The PSE and the Securities and Exchange Commission can also collect transaction fees.
All combined, these could be greater than the capital gains that BIR could collect on shares with acquisition cost below the selling price, and the BIR doesn’t have to do through the tedious process of tracking each individual account, to determine how much capital gains apply to whom.
Otherwise, many small investors may not even bother to tender because of the volume of documents and the tedious process of selling outside the PSE. If they don’t sell, there’s no capital gains tax to collect in the first place.
“If BIR exempts Holcim, they can collect taxes sooner and without the work of going through each account, most of which will not be subject to capital gains tax anyway because most acquisition costs are very high … well above tender price (Holcim prices were above tender price for most of its listing period),” one market veteran explained.
