Bourse’s SRO priced above market at P252/share

The Philippine Stock Exchange (PSE)—racing against time to pursue an equity deal that could make or break its goal of unifying the country’s capital market infrastructure—has attained a surprising premium pricing for its P2.9-billion stock rights offering (SRO).

In a disclosure on Friday night, the PSE said it had priced its stock rights offering at P252 per share, marking a premium of 6.7 percent from the last traded price of P236.20 per share despite the volatile global financial markets.

Eligible stockholders of record as of March 1 will be given the right to subscribe to one new PSE share for every 6.3847 shares held.

The PSE’s offering, arranged by BDO Capital and First Metro Investment Corp., will run from March 12 to 16.

“We had a book-building and there was good demand from new investors so (pricing was) cleared at P252. It was surprising as stock rights are usually priced at a discount so this is the only SRO where it is priced above market,” Eduard Francisco, president of BDO Capital, said in a text message on Saturday.

Asked why he thought demand was strong for PSE shares, Francisco said it was a “rare chance for institutions to get sizeable number of shares.”

“Also, this reinforces their belief in combined stock and bond exchange,” Francisco said, adding that the demand all came from local investors, without any cornerstone investor backing.

About 51 percent of the proceeds from this offering will be used to repay debt to be incurred in connection with its plan to acquire the Philippine Dealing Systems Holdings Corp. (PDS Group), the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp., Philippine Depositary and Trust Corp. and Philippine Securities Settlement Corp.

“The pricing was very good. It’s priced above market price which is unheard of in rights offerings, which goes to show how much demand there is for shares of the PSE,” said Miguel Agarao, vice president of fund management firm Philequity in an investors’ briefing on Saturday.

“They are buying the PDS. That should increase the earnings of the PSE significantly. This is a very attractive rights offering,” Agarao said.

To date, the PSE has signed deals with multiple parties that will give it 69.03-percent control of PDS. But it is facing an increasingly impatient regulator, Finance Secretary Carlos Dominguez III, who has called out the PSE’s noncompliance to the 20-percent ownership limit of any single industry in an operating exchange.

To allow the demutualization or the conversion of the PSE from a nonstock, for-members only institution to a corporation held by stockholders in the 2000s, the Securities and Exchange Commission (SEC) issued exemptive relief to a handful of institutional investors which were invited come in to reduce stock brokers’ ownership of the local bourse. But over a decade this demutualization, stock brokers’ cumulative ownership in the PSE is still in excess of 20 percent.

The P2.9-billion stock rights offering will allow the PSE to comply with the ownership limit as the sale of new shares to new investors will dilute the cumulative shares of stock brokers. The stock rights offering will not be open to the brokers.

At the same time, most of the proceeds from the offering will allow the PSE to pay for the shares in PDS that it will acquire.

Once these are achieved, the PSE will still have to seek exemptive relief from the SEC to be able to acquire a controlling stake in PDS.

A underwriting commitment has been signed with BDO Capital and First Metro for the SRO on Friday, ensuring that the PSE’s offering will be fully subscribed.

“This is a reform that has remained unresolved for many years. It took no less than Finance Secretary Dominguez to ensure that full compliance is finally achieved,” PSE chair Jose Pardo said.

“The firm commitment of our underwriters to our SRO effectively reduces the ownership of brokers in the Exchange to below 20 percent. Compliance with the Securities Regulation Code on the 20 percent maximum broker ownership in the Exchange has finally been achieved,” PSE president and chief executive Ramon Monzon said.
Meanwhile, a rival bid to take over PDS has emerged from the state-controlled Land Bank of the Philippines.

The SEC has welcomed what it deems as a “healthy” competition between Landbank and the PSE to take over PDS.