By Arra B. Francia
COMPANIES planning to list on the bourse for the first time will now have to ensure that 20% of issued and outstanding shares will be freely available and tradable in the market, double the previous minimum after the Securities and Exchange Commission (SEC) approved the stiffer requirement.
The country’s corporate regulator announced on Tuesday that it has doubled from 10% — in place since 2011 — the minimum public ownership requirement (MPO) of firms applying to conduct an initial public offering (IPO) in order to increase market liquidity.
“Now the requirement is that, if there’s an IPO coming forward, the minimum public float is 20%. That’s already been approved by the commission, effective now,” SEC Commissioner Ephyro Luis B. Amatong told reporters in a briefing at the Philippine International Convention Center in Pasay City on Tuesday.
The commission will release the memorandum circular for the new regulation this month, but Markets and Securities Regulation Department (MSRD) Director Vicente Graciano P. Felizmenio, Jr. noted that companies must already comply with the rule.
“As a matter of policy, that’s already required,” Mr. Felizmenio said.
A draft circular the SEC released for public comment in June had said that those already listed at the Philippine Stock Exchange (PSE) “will be required to increase their public float to at least 15% on or before the end of 2018, and then to at least 20% on or before the end of 2020.”
“Going forward, MSRD is still studying the mechanics for the application of the rules on existing [listed firms],” Mr. Felizmenio said, adding that the rules for existing listed firms will be released by the first quarter of next year.
“That’s being studied: their prospective for a re-IPO or FOOs (follow-on offerings).”
He claimed the stiffer requirement has been well-received by fund managers and investors, explaining that “[t]he higher the public float, definitely we expect more liquidity; and more liquidity means we are more attractive to investors, especially the institutional ones.”
The SEC had said in June that 68 listed companies will have to raise their MPO as a result of this increase.
The PSE had noted in May last year that actual public float of many of the bourse’s 264 companies ranged from 45% to 47%, already exceeding the required minimum MPO level.
Mr. Amatong noted that no large companies will be affected by the MPO increase, since their MPOs already exceed 20%. “Marami na doon sa existing — pwera sa dormant — above 20% na rin (Many of existing listed firms — except for those dormant — already have MPOs that are above 20%),” he said.
Noncompliance with the MPO requirement opens erring listed companies to administrative sanctions under Section 54 of Republic Act No. 8799, or The Securities Regulation Code, besides a higher tax rate.
The Bureau of Internal Revenue’s Revenue Regulations No. 16-2012 provides that publicly listed companies that maintain the minimum public ownership level are subject to stock transaction tax amounting to one-half of one percent of gross selling price, while those that fail to do so have to pay a five percent final tax or 10% net capital gains tax, as well as documentary stamp tax.
Sought for comment, analysts said the higher MPO requirement will increase small investors’ chances of participating in IPOs.
“Well that’s great for minor shareholders and investors — better participation and liquidity assuming that pushes through,” Regina Capital Development Corp. Managing Director Luis A. Limlingan said in a mobile phone message.
While acknowledging via text that “[a]dditional public float would be more conducive for liquid stock trading and, hence, entice investors more to invest in the stock doing IPO”, RCBC Securities Inc. equities analyst Jeffrey Lucero said that the “additional float requirement may discourage some firms from conducting IPO.”