Go public to expand your business

MANILA, Philippines —For businesses wanting to expand but needing an infusion of fresh capital, an initial public offering (IPO) may be the way to go.

Even family-owned businesses, it was pointed out during the recent installment of Philippine Stock Exchange (PSE) ‘Road to IPO’ series, may reach a point where personal assets might not be enough to achieve the growth they aim for.

The PSE’s annual Road to IPO sessions, conducted in partnership with the Department of Trade and Industry and the Securities and Exchange Commission (SEC), aims to promote IPO listing as an integral part of a company’s life cycle in achieving long term growth.

Ramon Monzon, PSE President and chief executive officer, says they launched Road to IPO in 2021 “amid the pandemic when many businesses were struggling and looking for avenues to raise capital.”

An IPO, or stock launch, is a public offering of shares of a company to investors. Among the benefits attributed to an IPO are gains from listing on the stock exchange, enhanced liquidity, fair opportunities for investors, cost-effective purchases, and stringent regulations that contribute to greater transparency.

READ: SEC issues new rules covering large IPO investors

Furthermore, when it’s time to unload stocks, sellers enjoy a much lower capital gain tax than if they were to sell shares over the counter.

For the PSE, encouraging IPOs is one of its core strategies to increase market depth.

Monzon explains, “An integral component in achieving this [increasing market depth] is growing the number of companies listed on the exchange [thus] we have actively embarked on programs that will help expand the local IPO market.”

Panelists in this year’s Road to IPO forum outlined their own growth experiences. They were Robert Gerard Nepomuceno, Aslag chief financial officer; Jose Soberano III, Cebu Landmasters Inc. president and CEO; Alvin Lao, D&L Industries president and CEO; and Lorraine Belo-Cincochan, Wilcon president and CEO. Miguel Agarao, vice president of Philequity Management Inc., moderated the discussion.

Fund-raising

The panelists say the challenge for businesses wanting to expand is getting the money to finance the move. They agree that going public helps expand businesses. It is the best option to gain access to sizable financing.

READ: Credit growth up in January amid brisker lending to businesses

Listing also unlocks the valuation of a company. Public listing, for instance, has accelerated the growth of the SM group and propelled its founder, Henry Sy Sr., to become the country’s richest man when he was alive.

Instead of borrowing money from a bank and paying interest, a company brings in investors who are willing to buy into its growth story and share the risks.

PSE listing, following the IPO, brings credibility to the business, particularly with the banks. It helps establish the reputation of listed companies, not just in raising capital but also in recruiting the most qualified and competent people.

There is also greater transparency in a publicly listed company, as they are required to fill out so many documents and submit several reports regularly. It keeps business owners and management on their toes, as they undergo greater scrutiny from the public every single trading day.

Anything that happens with a material impact on the company is immediately reflected in its valuation. For instance, share prices may surge when a company is expected to be involved in an exciting merger or acquisition, but will fall when there’s a new policy that could curb its profits.

While there may be drawbacks, the panelists agree that the benefits outweigh the negative effects of IPO—especially for companies that aspire for longevity across generations to come.

To encourage more companies to go public, Monzon says PSE has significantly relaxed its listing rules, especially for small and medium enterprises, effective the first quarter of 2021.

READ: PSE to host listing sessions for IPO-ready companies

“Toward the latter part of the same year, we started to promote our Listing Engagement and Assistance Program (LEAP) to help potential listing applicants in their IPO journey,” he says.

Forward-looking

Agarao, who gave a stock market outlook, also has words of encouragement to businesses thinking of going public. “The stock market is forward-looking. It does not look back.”

He reports that the market has started to rally beginning late last year and almost all risks have been reduced.

Over 70 companies are now enrolled in PSE LEAP and Monzon says the exchange also has several platforms to reach more companies that may want to do an IPO.

The Road to IPO series, he says, aims to provide firsthand information from business owners who took their companies public.

He told the audience at the recent session, “In sharing their experiences, we hope you will have an even better appreciation for the IPO mindset. We hope the business reasons that prompted them to go from private to publicly listed (companies) resonate with you and perhaps be the impetus for you to start your Road to IPO.”

Also supporting this year’s IPO campaign, aside from the forum panelists, are Edgar Sia II of Double Dragon Corp., Lester Yu of Fruitas Holdings, Inc., and Ernesto Tanmantiong of Jollibee Foods Corp.

SEC Chair Emilio Aquino, who closed the session, says the IPO is “a significant step to achieve (a company’s) full potential.” While going public is challenging, it is also rewarding, offering opportunities for a company to build its reputation and extend its reach. —CONTRIBUTED INQ