New backdoor listing rules up

The Philippine Stock Exchange released its proposed rule-revisions for  backdoor listings, with new guidelines to include a lock-up period and tighter requirements for add-on fundraising.

A backdoor listing occurs when a publicly traded company merges with an unlisted firm, and results in a significant change in business, board or voting structure.

A PSE said in a memorandum that it recognized the limitations of existing rules, which only focused on disclosure obligations, and not on the equally crucial act of follow-on fundraising that could be held to the disadvantage of minority stockholders.

Among the companies that had taken the backdoor listing route since last year were LT Group Inc., Melco Crown Philippines Resorts, STI Education Systems Holdings and Bloomberry Resorts Corp. Emperador Distillers Inc. plans to follow suit.

“In light of the recent backdoor listings and the clamor from the market to give the public an opportunity  to participate in fund-raising initiatives of a company that is backdoor listed, the exchange  is … revising its backdoor listing rules,” the PSE said.

The public has until Sept. 20 to comment on the proposed guidelines.

Section 6 of the proposed rules on additional fundraising said that the company must first make a public offering before it is allowed to raise funds through a private placement.

The bourse added that shares issued by the company after the backdoor listing exercise is completed will not be approved for listing until the company has complied with the public offering requirement.

The PSE also imposed a lock-up requirement of 180 days, if upon listing of shares, the company complied with the track record requirement of the PSE. If exempted from the track record requirement, the lock-up will be one year after listing.

The rules come as the PSE noted that backdoor listings “are generally discouraged as a mode of listing.”

By the nature of the transaction, it said this route “gives rise to the inference that, on its own, the acquiring entity does not possess the track record and suitability requirements to qualify for listing under existing rules,” the bourse added.

The proposed guidelines would, thus, “expand the obligations of the listed company with the intent of promoting transparency and further protecting the interest of the investing public.”