PSE: Disclose price range in follow-on offerings for investing public’s sake

The Philippine Stock Exchange (PSE) plans to tweak its listing rules to require companies and exchange-traded funds (ETFs) selling common shares during a follow-on equity offering to disclose a price range to better guide the investing public.

“The objective of the exchange is to protect small investors by informing them that pending final determination of the offer price, they should be guided by the disclosed price range in any transaction prior to the price-setting date,” the PSE said in a draft circular released to solicit public feedback until Oct. 5.

Upon filing of an application, a company will be required to disclose in the prospectus the offer price range consisting of a floor price and a cap. Listing applications without disclosure of the offer price range would not be accepted by the PSE, the exchange said.

The proposal to impose a price range is consistent with the rules of Bursa Malaysia, Indonesia Stock Exchange and Shanghai/Shenzhen Stock Exchange which all require a lower limit for follow-on offerings, the PSE said.

The PSE’s current listing rules do not require the disclosure of a price range for any type of public offering of equity shares. By practice, listed companies intending to conduct such public offering normally indicate only the maximum number of shares to be offered and the maximum offer price in its prospectus and other offering documents.

“Small investors, in general, fail to recognize that the price disclosed in the offering documents (i.e., red herring prospectus) is the ceiling and that the final offer price may be lower than the disclosed price. The investors may expect to realize capital gains considering the difference between the market price and the disclosed maximum offer price,” the PSE said.

To address this situation and protect small investors, the PSE proposed to require the disclosure of a price range consisting of a minimum price and a maximum price so that investors would be informed of the possible changes in the final offer price.

The PSE further said this new requirement would be limited to follow-on offerings of common shares and ETFs because in initial public offerings (IPOs), the issuer will not have a baseline price while in stock rights offerings, the price is usually determined by the issuer at the onset.

For preferred shares, the offer price is not a material consideration for investors as they buy on the basis of the coupon rate, the PSE said.

The PSE also seeks to align its fee framework with that of the Securities and Exchange Commission especially with regard to the rate for initial listing under the Small and Medium Enterprise (SME) board.

Under the proposal, the processing fee will be removed. An applicant company will be required to pay a fee only upon filing of the listing application.