Tighter rules on backdoor listing, private deals eyed

The Philippine Stock Exchange is drafting tighter rules on backdoor listing and private placement of shares following concerns that the existing blueprint shuns retail investors out of large equity deals.

One option under consideration was for the PSE to require companies that enter the local bourse through the backdoor—or by taking over a dormant listed company—to conduct a public offering within a certain period of time similar to the current requirement for companies that list by way of introduction, PSE president Hans Sicat said in an interview with Inquirer Friday night.

Sicat said consultations on this matter were ongoing and the PSE was looking at practices in the region. In the case of private placements, he said the PSE might impose a cap on such private share sale transactions as a ratio of outstanding capital, taking into account norms in the region.

“We’re at this stage of reviewing it because there are some comments in the market that (some are) trying to take advantage of the way the rules are,” Sicat said. “We want to preserve what’s there but (we’re) trying to be fair to everyone.”

Sicat said these things have come to the PSE’s attention following the case of LT Group Inc. (LTG), a holding firm led by taipan Lucio Tan.

The Lucio Tan group infused key assets into what was once a purely liquor company, Tanduay Holdings, which thus became a backdoor-listing vehicle for the conglomerate. In April, LTG raised $920 million or about P38 billion from the private sale of shares to institutional investors. This offering size exceeded any initial public offering seen in the local market.

“It’s valid under the rules today but maybe we need to review the rules,” Sicat said.

Sicat said there were separate rules on backdoor listing and private placements but these were “interrelated.” As such, the PSE is conducting what is more like a market review. “Conceptually we understand the issues but obviously we don’t want to kill the market,” he said.

From the perspective of the issuer, selling shares through a private placement is a quicker way of raising money as against the more tedious process of selling shares to the public. Among local issuers, one popular arrangement is through a top-up placement, in which the principal shareholders lend their secondary shares for a quicker deal and then subscribe to the same amount of primary shares afterwards, allowing the proceeds to flow into the company.