BIZ BUZZ: How to end the IPO drought
With the Philippine stock market languishing as one of the most unloved bourses in the world—no thanks to the unfolding flood control corruption saga—capital market leaders are at a loss on how to shore up investor confidence and encourage initial public offerings (IPO).
Investment banker Eduardo Francisco, president of BDO Capital & Investment Corp., has a novel idea, one that’s seen in line with Bangko Sentral ng Pilipinas Governor Eli Remolona’s fervent wish to help small and medium enterprises (SMEs) gain access to the capital market.
Given that investors favor fixed income over equity when the environment is volatile, Francisco believes that promoting the listing of more preferred shares rather than outright equity may be an alternative way to stimulate activity in the local stock market.
However, he noted that the minimum public offering size required by the Philippine Stock Exchange (PSE) is P1 billion, which is unattainable for SMEs.
Thus, Francisco is requesting the PSE and the Securities and Exchange Commission to lower the minimum amount to P500 million. This is for the PSE to cast a wider net, and hopefully attract new names to brave going public.
Currently, most of the companies that offer preferred shares through the PSE are large-cap and second liners that are already listed.
“If they are not yet listed, preferred [shares offering] is a safer way to introduce them,” Francisco said.
This strategy can allow these smaller firms to raise new money through preferred shares, which give investors fixed return.
“If they are listed, they get pogi [good optics] points,” Francisco said. “So at least, if they want to be bought out later on, or they want to get foreign partners, the fact that they are listed gives them value.”
Later on, he said it would be a lot easier for these companies to conduct a follow-on offering of either common shares or preferred shares.
“At least, they have a seal of good housekeeping,” he said.
