Protecting small stockholders’ pre-emptive rights

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Emeterio Sd. Perez

Emeterio Sd. Perez

A MARKET investor, who identified himself as Lemuel Delloro, is asking why the Philippine Stock Exchange and the Securities and Exchange Commission “did not slap penalties on Marcventures.” He went on to cite a serious violation which Due Diligencer decided not to cite here so as not to pre-empt any move that the SEC and PSE may pursue if their officials have any plan at all to investigate Marcventures Holdings Inc.

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The company failed to fully inform the public about the suspension by the government of the mining ventures of its subsidiary.

Any investor would express the same fear as Delloro did when regulators fail to do their job of closely monitoring the trading on Marcventures shares. He or she would particularly worry over suspicious trading of a stock that the examiners of PSE and SEC should now urgently look into.

As to the late disclosure of certain information that should have been filed by Marcventures, Due Diligencer needs more information, which Delloro may want to provide, while this writer is reviewing the company’s postings on the PSE website.

Thanks for reading The Manila Times.

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As this writer has long been suggesting to officials of the Securities and Exchange Commission, the public would be more informed about the market if only they adopted a stricter disclosure policy. It is not enough that a public company has filed a report just for the sake of complying with the rule.

The report or filing should be complete. In the case of Marcventures, the public had to rely on media coverage of the suspension of the mining activities of the company’s unit. The published information probably had been provided by the company minus certain events such as when the suspension took place.

This writer has long ago advocated ART as a guide for regulatory filings of listed companies. ART is only a borrowed idea from someone who, apparently, has been educated on the market’s full disclosure policy.

The three letters stand for accuracy, relevance, timeliness. The three words are self-explanatory.

Based on ART as the definition of full disclosure, has Marcventures been compliant with the market’s rule on transparency? Only an investigation by the SEC and PSE could find the answer.

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Still on full disclosure, will the SEC also look into dilution as a strategy undertaken by the majority stockholders of listed companies to ease out the minority of their due representation in the board? Whatever happened to the pre-emptive rights of existing stockholders to the issuances of new shares?

If only the SEC and PSE would be more vigilant when a listed company increases its authorized capital stock and sells a significant block to outsiders, meaning newcomers, without the benefit of amending its corporate charter.

A company could ignore the pre-emptive rights of existing stockholders. Why not? But it can only do so if its charter does not provide for pre-emptive rights, which a few listed companies have successfully implemented by amending their corporate charter.

Depriving the existing stockholders, particularly the small investors, of their rights to future issuances of shares, could eventually take its toll on the market. Imagine the flight of capital that would ensue should foreign investors who have heavily invested in the local market find themselves without any regulatory protection against the majority stockholders’ abuses. Only the SEC could prevent the exodus of foreign funds from the Philippines by seeing to it that pre-emptive rights of stockholders are strictly observed by listed companies.

esdperez@gmail.com

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