Lower IPO float creates uneven field

The recently announced move of the Philippine Stock Exchange (PSE) to lower the minimum public ownership (MPO) for large initial public offerings (IPOs) may not be good for investor confidence as it creates an “uneven playing field,” stock market analysts said.

“It’s not good optics for the PSE, since they have been fairly active in penalizing companies that fall below public float requirements, and this might be viewed as the regulator bending the rules a little bit to accommodate big corporate interests,” AP Securities, Inc. Research Head Alfred Benjamin R. Garcia said in a Viber message.

Unicapital Securities, Inc. Research Head Wendy B. Estacio-Cruz said in a Viber message that the lower MPO creates an uneven playing field.

“If exemptions become the norm, it might create an uneven playing field where larger firms get more leniency than smaller ones, potentially discouraging fair competition,” she said.

PSE President and Chief Executive Officer Ramon S. Monzon said last week that the market operator has secured approval from the Securities and Exchange Commission (SEC) to lower the public float requirement to encourage undecided companies to proceed with their listing plans.

IPO-bound companies can initially comply with a 15% public float, as long as they commit to raising the public float to 20% within two years.

Mr. Monzon has said the move is not permanent and will be revisited in the coming years.

“We have a two-year window, then if that’s not working, we will extend it for another two years,” he added.

The PSE’s move comes as GCash, controlled by Globe Fintech Innovations (Mynt), plans to go public later this year.

Bloomberg quoted Globe Telecom, Inc. President and Chief Executive Officer and Mynt Chairman Ernest Cu as saying that the GCash IPO will partly depend on regulators agreeing to lower the public float to 10-15% for bigger offerings.

However, Mr. Garcia said relaxing the public float requirement for IPOs is not in line with ongoing efforts to improve corporate governance standards in the country.

“A lower percentage of public ownership means that the public is a smaller minority that can easily be overruled or ignored when making corporate decisions,” he said.

“It would also have long-term implications in terms of the attractiveness of the Philippine market to investors. The requirement to raise the public ownership level up to 20% would also provide an overhang for those subscribing to the IPO, since there is a sure dilution of your stake in the next two years,” he added.

Ms. Estacio-Cruz said a prolonged lower public float may also “lead to reduced stock liquidity and higher price volatility, making the market less attractive for retail investors.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the lower public float for IPO-bound firms should only be a temporary relief.

“This could be a temporary regulatory reprieve while there is market volatility that somewhat reduced market interest. It could be reinstated after some time especially once market conditions improve, since these are part of market reforms,” Mr. Ricafort said.

“However, there should be a delicate balance to encourage more companies to list shares in a challenging market environment,” he added.

Meanwhile, China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message that the recent move by the PSE will help persuade some companies that are facing difficulty in meeting the 20% MPO.

“Ideally, we would like listed companies to have a high public float to enable more investors to participate in wealth creation, promote better corporate governance standards, and enhance market liquidity,” he said.

“Public float and liquidity are particularly important to foreign investors and are critical criteria for inclusion in global and regional equity indices. Thus, if we would like to attract more foreign capital flows into our stock market, it would make sense to promote measures and cultivate conditions that boost public ownership and trading levels,” he added.

The local bourse has yet to see an IPO this year. However, some of the expected public listings include GCash, Pangilinan-led water concessionaire Maynilad Water Services, Inc., and Cebu-based fuel retailer Top Line Business Development Corp.

The PSE is expecting six IPOs this year. – Revin Mikhael D. Ochave, Reporter