Bourse finalizing listing rules for small firms

The Philippine Stock Exchange (PSE) aims to complete in a month’s time a framework for a new board for companies with smaller market capitalization that will consolidate the rosters for the current second and small-and-medium enterprise (SME) board.

In a briefing last week, PSE president Hans Sicat said that once the new rules have been drawn up for small-cap stocks, there would be a transition period for companies already listed on the current second and SME boards. The proposed rules for the new board seek a minimum track record, five-year business plan, stringent lock-up requirements and a prohibition on the offering of secondary shares during the initial public offering.

For companies planning to list on the new board pending the completion of the PSE’s review, Sicat said it was best for them to finish and comply with the requirements under the original classification while some of the rules might apply later on.

After getting feedback from the public on the proposed rules for the new board, Sicat said PSE management could take two to three weeks to prepare the final recommendation to the board and would likely be able to get the go-ahead for implementation in a month.

The PSE has proposed the creation of a new board to replace the existing second and SME boards. Under its proposal, a company applying for listing on the new board must have an authorized capital stock of P100 million or more, of which a minimum of 25 percent must be subscribed and fully paid.

With the proposed rules, Sicat had said that the PSE was enhancing the investor-protection features of the listing rules for smaller-cap companies intending to list on the local bourse.

On the track record requirement, the proposed rules state that the applicant company must have a cumulative pre-tax profit of at least P15 million, excluding nonrecurring and extraordinary income and/or loss for the last three fiscal years immediately preceding the application for listing; a minimum pre-tax profit of P3 million for each of the three full fiscal years immediately preceding the application for listing; and an operating history of at least three years prior to application for listing.

The proposed rules also seek a five-year business plan requirement, which the PSE said was needed so that the applicant could demonstrate its stable financial condition and prospects for continuing growth.

On the lock-up requirements, the PSE proposed that the shares of existing stockholders who beneficially own at least 10 percent of the issued and outstanding shares of the applicant company would be locked up for a period of two years from listing. Thus, covered shareholders could not sell their securities during the lock-up period.

The proposed rules also prohibit a secondary offering during an IPO to make sure that the funds would go to the company and not to shareholders.

The PSE also wanted to prohibit the company from changing its primary business purpose for a period of five years from listing on the new board.