Issuing primary shares to public investors

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EMETERIO SD. PEREZ

EMETERIO SD. PEREZ

THE Philippine Stock Exchange said in a yearend report that foreigners accounted for 51 percent of trading turnover on listed shares in 2016. It did not name them.

Will it be too late for the PSE to identify the foreign funds responsible for the huge increase in stock trades in 2016?

Instead of simply stating “foreign selling, P990.805 billion; foreign buying, P988.646 billion” resulting in “net foreign selling of P2.16 billion,” it should have identified the foreigners’ nationalities.

The answer to the poser may not mean much to PSE statisticians but it matters to the public investors who certainly are interested to know who among these foreigners are buying when the locals sell and who are selling when they buy.


List and pay less taxes
Perhaps, by now even foreign funds know the limitation of the number of listed shares that are tradable because the number of shares owned by the majority stockholders, who are mostly families, has not changed much over the years.

As a matter of fact, the absence of market rules against buying back shares enables some of these company owners to regain what they had issued to the public.

Of course, there is no prohibition against their reacquisition of their companies’ shares.

Remember, families that control businesses do not list all outstanding shares but sometimes only a few or some to qualify them to pay less taxes due the Bureau of Internal Revenue.

To the majority stockholders, one-half of one percent of the stocks’ market value matters much when they issue shares either to themselves or to their allies.

Why pay 25 percent of market value when, by listing only few and not all outstanding shares, a business owner would remit less to the BIR? (For statistics on income taxes, access www.bir.gov.ph.)

MPO rule
Both the SEC and PSE should have taken the initiative many years ago to study the 10-percent minimum public ownership (MPO) rule governing listed companies. As the regulation suggests, the public should own at least 10 percent of outstanding shares.

To this day, as the regulatory authority, the SEC has not even considered reviewing compliance by listed companies with the MPO rule.

Yes, it is only the SEC that has the power to determine if the market’s MPO is being strictly followed, by studying the ownership profile of corporate stockholders.

Are these minority but significant stockholders related to the majority stockholders?

Deciphering the ownerships of both significant and minority stockholders of listed companies is a must. It should be the responsibility of the SEC’s monitoring team and not of the PSE, which is covered by the market’s MPO rule as a listed company.

Floating more shares
With the close of 2016 two days ago and two days into the New Year, it is about time listed companies float more shares for them to also become public.

If the rule sets the MPO at 10 percent of outstanding shares, this should be amended to “outstanding capital stock.” The three words inside a pair of quotation marks are broader in scope than “outstanding shares” which, to Due Diligencer’s interpretation, refers to common shares only.

As I have been espousing in this space, listed companies must also be public. Their majority owners can do this by not restricting the definition of MPO to the “outstanding common shares.”

Has MPO become only a rule to be easily circumvented?

This may be a question that needs an answer or answers, which may not be forthcoming at all unless the SEC strictly applies the MPO rule.

To fully implement the MPO rule, the SEC should force listed companies to increase their outstanding shares by additional issuances of primary shares. This means tapping unissued common shares of the authorized capital stock. Easy, isn’t it? Again, just asking.

esdperez@gmail.com

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