PSE revising IPO rules with eye on SME boards, seeks feedback
THE Philippine Stock Exchange Inc. on Thursday said it wants to implement revisions to its listing rules for the main and small, medium and emerging (SME) boards in a bid to attract more companies to go public and align with the regional practice.
“We reviewed our listing rules alongside the listing rules of our peer exchanges. We noted that there are provisions in our rules that can be aligned to what is practiced in the region. There are also rules that can be relaxed so more companies can access the stock market for their capital requirements. When we did this exercise we also had to consider the impact of the pandemic to the economy and the capital market,” PSE President and CEO Ramon S. Monzon said.
A company applying to list in the main board must satisfy the profit and market capitalization tests and meet shareholders’ equity requirement.
In the proposed revisions, the
market capitalization test was removed but the applicant must satisfy both the profit and minimum total stockholders’ equity requirements.
The current profit test considers the company’s earnings before interest, taxes, depreciation and amortization or ebitda, requiring at least P50 million for the last three years and a minimum ebitda of P10 million for each of the three years.
The suggested rule amendment on profitability prescribes an aggregate net income of P75 million for the last three financial years and a net income of P50 million for the most recent financial year.
The company must also have at least P500 million in stockholders’ equity on its most recent financial year.
For the SME board, meanwhile, the profitability and operating history are among the criteria that are recommended to be relaxed.
From a purely ebitda-based screening, the applicant now has the option to satisfy either the ebitda requirement or the net sales or operating revenue.
The applicant will be required to have a cumulative net sales or operating revenues of at least P150 million for the last three years or such shorter period as the company has been operating, and show at least 20-percent average growth rate for net sales/operating revenues over the latest two years. The PSE also wants to reduce to at least two years, from the current three, the operating history requirement prior to listing.
“While the rule revisions we are recommending are meant to make it easier for companies to go public, the PSE is keeping and will continue to enforce listing provisions pertaining to investor protection and suitability requirements,” Monzon said.
One major changes being proposed to the SME listing rules is the adoption of the sponsor program wherein companies with significant growth potential, but are unable to qualify using the new SME board requirements, may apply for listing through the sponsor model.
The sponsor, an investment house which should pass PSE’S accreditation, will be responsible for hand-holding the company from its IPO preparation phase to three years after listing, to ensure that the company complies with listing and continuing listing and disclosure rules for all publicly listed companies.
“This big brother model is adopted by various bourses in the region and we think that this will also work in our market. There are so many SMES, even start-ups, with very promising business concepts and models that may still not qualify to list even with our proposed SME board rule revisions. But this should not deter these companies from tapping the stock market for their funding requirements. With the Sponsor model, we hope to help and support more SMES grow their businesses,” Monzon said.
For companies planning to do an IPO in the main or SME board in 2021 and 2022 but whose operations or businesses were adversely affected by Covid-19, the PSE said it may consider the profitability of the applicant for any two fiscal years in the three most recent fiscal years, excluding the year of the impact.
“This temporary relief is PSE’S way of supporting government’s initiative to ramp up the economy by assisting companies, including SMES. We know that businesses need to access capital to revitalize their operations. By easing certain requirements, we hope to make a significant contribution to the country’s economic recovery process,” Monzon said.
The PSE is seeking comments for its proposed revisions of rules through October 7.