Philippine Stock Exchange building. —File photo from the Philippine Daily Inquirer
Long processes and loose enforcement of governance policies are preventing around 400 private enterprises from braving the local stock market, with the Philippines lagging behind its Southeast Asian peers in capital market development.
In its Capital Market Review launched on Wednesday, the Organization for Economic Cooperation and Development (OECD) said the Philippines was second to the last among its neighbor countries when it came to key governance indicators. These include corporate and shareholder governance, protection of minority shareholders’ interests, and regulatory quality.
Singapore and Malaysia topped the list in nearly all categories.
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The OECD stressed that 411 private enterprises in the Philippines had the potential to go public, which should encourage both the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) to strengthen measures to make listing more attractive to these firms.
The minimum criterion for listing on the main board of the PSE is to have an anticipated market capitalization of at least P500 million. Based on the OECD’s study, 55 percent of large unlisted companies meet this requirement.
According to OECD director for financial and enterprise affairs Carmine di Noia, private enterprises are often discouraged by the inaccessibility of public equity markets, as well as weak enforcement of corporate governance policies.
“Although the SEC and PSE have taken important steps to improve corporate governance, it remains a key issue to improve investor confidence in the domestic capital market,” OECD said in its report.
For example, the Securities Regulation Code prohibits insider trading, or trading of public shares by people with access to nonpublic information, such as mergers and acquisitions. This gives insiders an unfair advantage over ordinary investors and tends to manipulate stock prices. The SEC has previously investigated cases of insider trading.
For their part, SEC Commissioner McJill Bryant Fernandez told reporters in a media briefing on Wednesday that planned to update the Philippine Code of Corporate Governance to factor in OECD’s findings.
The report likewise found that the Philippines was the only country in Southeast Asia without state-owned enterprises (SOEs), such as Land Bank of the Philippines and Development Bank of the Philippines, listed on its bourse.
“The listing of [SOEs] has significantly contributed to the growth and dynamism of capital markets worldwide,” OECD said.
In Singapore, three of its top-listed SOEs account for 27 percent of the Singapore Exchange’s total market capitalization.
Fernandez pointed out, however, that the charters of some SOEs in the country needed to be revised to allow listing.
“There’s a need to review the respective charters of these SOEs, whether these [listings] are for national development projects or for charity purposes,” Fernandez said.