SEC considers tiered public float for IPOs

The Securities and Exchange Commission (SEC) is looking at a tiered approach for the minimum public float requirement of companies seeking to list on the stock exchange, its chairperson said.

SEC Chairperson Francisco Ed. Lim said the current 20% minimum public float requirement for companies planning to conduct an initial public offering (IPO) is a “one-size-fits-all” situation that could be addressed by a tiered system depending on the company’s market capitalization.

“A 20% float at IPO, regardless of the size of the issue, was done to improve the liquidity of the market, which is one of the basic problems. But I think the 20% (float) is ‘one size fits all.’ Personally, I don’t think that’s the way,” Mr. Lim said in an interview to be aired on One News’ Thought Leaders with Cathy Yang on July 25.

Mr. Lim said he asked the supervising SEC commissioner to look at tiers that would depend on the company’s market capitalization.

“The higher the market capitalization is, the lower the percentage of free float,” he said.

Mr. Lim said the SEC will internally discuss the proposal but will also get comments from the Philippine Stock Exchange (PSE) and the public.

“I think this has been done by other exchanges. Let’s see what happens,” he said.

Mr. Lim said he is not in favor of providing exemptive relief from the current 20% public float requirement.

“I’m quite allergic to exemptive relief,” he added.

Mr. Lim said the tiered approach makes the rule applicable to all companies, unlike exemptive relief which is granted on a case-to-case basis.

“Just amend the rule to make it applicable to everybody rather than applying to a particular company, because once you do that, then other companies will have their own reasons why you should give exemptive relief,” he said.

In March, the SEC, which was then led by chairperson Emilio B. Aquino, said companies may apply for exemptive relief from the 20% public float rule “provided they bridge any gap from the 20% standard within less than 24 months from the listing date and only as deemed necessary by the commission.”

The SEC initially allowed an initial public float of 15% by way of exemptive relief, but subject to strict criteria.

However, the corporate regulator “remained firm” on the 20% minimum public float requirement for companies eyeing to do an IPO, citing the “value of higher public ownership to market depth and efficiency.”

The SEC’s move came as Globe Telecom, Inc. said the long-awaited IPO of GCash, controlled by Globe Fintech Innovations (Mynt), will depend on regulators lowering the required public float to 10%-15%.

In 2017, the commission increased the minimum public ownership requirement for companies looking to do an IPO to 20% from the previous 10%.

AP Securities, Inc. Research Head Alfred Benjamin R. Garcia said in a Viber message that the tier system would be better for companies seeking to go public.

“That would be a better approach than exemptive relief, since the latter feels too much like favoritism. It also makes better sense as it translates the percentage into peso amount, so the end result is still in keeping with the goal of ensuring liquidity,” he said.

“At least Mr. Lim seems to be more concerned about actual shareholder welfare rather than changing up the rules to accommodate certain companies,” he added.

Unicapital Securities, Inc. Research Head Wendy B. Estacio-Cruz said in a Viber message that the tiered approach offers a “more practical and inclusive way to encourage IPOs.”

“It offers a clearer and more predictable path for companies that may find it challenging to meet the 20% threshold right away. At the same time, it still supports the goal of improving market liquidity without being too rigid,” she said.

“This approach also helps avoid the impression that rules are being bent for certain companies, which can happen when exemptions are granted too often. Overall, it’s a fairer and more transparent way to strike a balance between attracting listings and building a healthy, liquid market,” she added.

The PSE aims to have six IPOs this year. However, only one company has made its stock market debut — Cebu-based fuel retailer and distributor Top Line Business Development Corp. in April.

Aside from GCash, other companies expected to go public include Maynilad Water Services, Inc. and integrated resort operator Hann Holdings, Inc.

On Tuesday, the bellwether PSE index rose by 0.04% or 2.95 points to 6,355.69, while the broader all shares index gained by 0.1% or 3.76 points to 3,757.20.

Mr. Lim’s interview on Thought Leaders with Cathy Yang will be aired at 9:30 p.m. on July 25 on One News Channel. — Revin Mikhael D. Ochave, Reporter