SEC lowers public float for some IPOs

The Securities and Exchange Commission (SEC) is allowing an initial public float of 15% for some companies seeking to go public, but subject to “strict” criteria.

“After thorough discussions with the Philippine Stock Exchange (PSE), the SEC has allowed, by way of exemptive relief, an initial public float of 15%, subject to strict criteria,” the corporate regulator said in a statement on Thursday.

However, the SEC said it “remained firm” on the 20% minimum public float requirement for companies planning to conduct an initial public offering (IPO), “especially given the value of higher public ownership to market depth and efficiency.”

Under its Memorandum Circular No. 13 issued in 2017, the SEC raised the minimum public ownership (MPO) requirement for IPO-bound companies to 20% from the previous 10%.

The SEC said that companies may apply exemptive relief from this 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.”

“This covers listing applications already filed with and accepted by the SEC and the PSE,” it said.

As of March 25, the SEC and PSE have not received any application for regulatory relief from potential IPO applicants.

The SEC issued the statement after the PSE President and Chief Executive Officer (CEO) Ramon S. Monzon last week said the regulator agreed to lower the public float requirement to encourage more IPOs.

Lowering the public float requirement could help pave the way for the long-awaited IPO of GCash, controlled by Globe Fintech Innovations (Mynt).

News reports previously quoted Globe Telecom, Inc. President and CEO and Mynt Chairman Ernest Cu as saying that the GCash IPO will partly depend on regulators agreeing to reduce the public float to 10-15% for bigger offerings.

On Thursday, the SEC reiterated that the 20% MPO requirement for IPO-bound companies “plays a crucial role in improving price discovery and reducing opportunities for price manipulation.”

“The float requirement also seeks to reduce ownership concentration and encourage good corporate governance, ultimately  capital market,” it added.

The SEC said it is committed to keeping the capital market “fair, transparent and efficient.”

“While the commission welcomes new listings, it upholds stringent regulatory standards that safeguard the integrity and long-term stability of the Philippine capital market and the broader economy,” it said.

Sought for expert comment, AP Securities, Inc. Research Head Alfred Benjamin R. Garcia said this new rule would help entice larger companies to push through with their IPO plans.

“We believe that this new rule would incentivize bigger companies to go public, especially if they have been putting off their offerings because of market conditions,” he said in a Viber message.

“If you would notice, we have only been getting smaller IPOs in recent years because the market has not been liquid enough to absorb large offerings,” he added.

On the other hand, COL Financial Group, Inc. Chief Equity Strategist April Lynn C. Lee-Tan said in a Viber message that the move might be detrimental for the companies planning their respective IPOs.

“Raising the float to 20% in two years max might be viewed negatively though by companies because there’s a risk that market conditions remain weak and the share price could be lower than IPO price by then,” she said.

“However, if you don’t need to sell as many shares, there’s a better chance you can sell your stocks at a higher valuation, for companies planning to do an IPO,” she added.

Unicapital Securities, Inc. Research Head Wendy B. Estacio-Cruz said the SEC’s statement that it remains firm on the 20% MPO would encourage firms to comply with the rule.

“But from what I see, the SEC is also open to provide such relief to pave way for some large companies to move forward with their planned IPOs, subject to assessment and adherence to criteria provided,” she said in a Viber message.

The PSE is anticipating six IPOs this year. However, the local bourse has yet to have its first public listing this year.

Several companies are expected to launch their IPOs this year including water concessionaire Maynilad Water Services, Inc. and Cebu-based fuel retailer Top Line Business Development Corp. – Revin Mikhael D. Ochave, Reporter