Nov 8, 2012

Philippines - Philippine Firms Face Deadline on Float

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Asia’s investment bankers, hoping to spice up a relatively quiet year, are turning their eyes to a new source of deals: the Philippines.

The country’s stock exchange is moving to raise the public float of companies listed on the bourse, whose market capitalization—at $256.29 billion as of last Wednesday—is among the lowest in the region.

By the end of the year, companies listed on the exchange will be required to have a 10% minimum float. To reach that level, the more than two dozen noncompliant companies would have to raise equity of more than $2 billion in total in the next two months.

Those that fail to comply will be suspended from trading on the exchange in January, before eventually being delisted in a process that could take a year or longer.

“The whole point of the exercise of being an exchange is that you would have enough supply [of shares],” Philippine Stock Exchange President Hans Sicat said Monday.

Having a higher public float, said Julian Tarrobago Jr., investment director at ATR KimEng Asset Management, “is governance positive and should add depth to the market.”

The plan was originally announced last year, with a deadline of November 2011, which was later delayed to the end of 2012.

Meeting the 10% public ownership floor isn’t an issue for most of the country’s major conglomerates, such as beer-to-airline giant San Miguel Corp., banking- and property-focused Ayala Corp., and power and toll-road company Metro Pacific Investments Corp. These companies have between 24% and 40% of their stock in public hands.

The story is different for some of their units.

Three San Miguel subsidiaries—San Miguel Brewery Inc, San Miguel Properties, and San Miguel Pure Foods Corp.—will have to sell more shares if they are to stay listed. Pure Foods began gauging investor interest in a premarketing process last week so it could sell $400 million worth of shares. A person close to the Pure Foods transaction said the food company is aiming for an eventual public float of between 20% and 25%, up from less than 1% now, and hopes to wrap up the sale by the end of this month. Pure Foods confirmed the share sale, saying it is aimed at complying with the new public-ownership rules.

San Miguel Brewery said in a filing on Oct. 31 that it needs an extra six months after the December deadline to raise its public float levels. It said its top shareholders, San Miguel Corp. and Japanese brewer Kirin Holdings Co., are still assessing their options.

Mr. Sicat, the exchange’s president, didn’t comment on San Miguel Brewery’s case, but he said there could be deadline extensions “on a case-by-case basis.” He said the PSE’s board of governors will have to hear clear explanations from the companies, and that letters from those seeking extensions so far haven’t been very specific.

San Miguel Properties has yet to disclose its plan, leading some analysts to say that at this late stage a delisting could be inevitable. The company had said on Aug. 30 that it was assessing options to comply with the minimum public ownership, and that voluntary delisting is possible if market conditions don’t allow it to pursue any of the options.

If it exits the market, it won’t be alone. On Oct. 29, Metro Pacific subsidiary Metro Pacific Tollways started a month-long tender offer to minority shareholders in preparation to delist. And GT Capital Holdings’ investment-banking unit, First Metro Investments, said earlier in October that its board decided to voluntarily delist the company rather than raise public ownership from 1.94%.

Companies that are delisted will lose a potential source of cheap funds.

Mr. Sicat said he is optimistic that at least half of the companies listed on the Philippine Stock Exchange with less than 10% in public hands will meet the deadline.

“There’s more work for investment bankers and lawyers, too…till the end of the year,” he said Monday.

Cris Larano and P.R. Venkat

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