The Philippine Stock Exchange (PSE) is working to make the local bourse an attractive avenue for small and medium enterprises (SME) to raise cash.
Ramon Monzon, PSE president, said the Exchange is awaiting the Securities and Exchange Commission’s approval on a proposed tweak in its listing rules for SMEs.
“We have proposed to remove the requirement that applicants must have a positive EBITDA (earnings before interest, tax, depreciation and amortization) in at least two of the three fiscal years preceding the filing of application,” Monzon said.
“We are providing an alternative criterion by which an applicant may qualify for listing. If a potential issuer is unable to meet the requirements, it may still qualify for a listing, if it has sales or operating revenues of at least P150 million for the last three years or for such shorter period the company is operating with at least 20 percent average net sales, or operating revenue, growth rate over the last two years,” he added.
The rule is in exchange for the existing requirement that a company listing at the PSE’s SME board must have at least P15 million in EBITDA for the last three years prior to its listing application, Monzon said.
“So even without any EBITDA or net profit, SMEs now will be allowed to list if they meet certain sales targets or certain sales growth targets,” he explained.
The PSE is also looking at requiring listing SMEs to have P25 million in stockholders’ equity instead of the current rule of having P100 million minimum authorized capital, with 25 percent subscribed and paid up.
“Meaning if a company has been operating for a while, even the retained earnings will be included in the computation of the P25 million stockholders’ equity,” Monzon said.
“We’ve also proposed to allow holding companies that have operating subsidiaries to list in the SME board whereas previously they were not. The only rules that we’ve kind of tightened up for the SME board is if (they) apply for listing in the SME board, (they) will never be allowed to assign the company for a backdoor listing,” he added.
Likewise, the PSE is looking to introduce the “sponsored listing,” wherein an accredited investment bank hand-holds the company from its initial public offering (IPO) phase up to three years after listing to ensure that the company remains compliant with listing and continuing listing rules and disclosure rules for publicly-listed companies.
“In the sponsor model, the applicant’s suitability for listing will be evaluated in the first instance by a listing sponsor accredited by the exchange. Using this and using the sponsors’ own deal selection criteria. If the listing sponsor is satisfied as to the applicant’s suitability for listing, after assessing its financial condition, business viability, future prospects and management track record, among others, it shall endorse the listing application to the exchange, which are passed upon the application using our Luxe listing criteria,” Monzon said.
“The listing sponsor will be required to provide guidance including business and compliance advisory services and ensure these for three years after listing,” he added.
For sponsor accreditation, the PSE is requiring the sponsor to at least have had five years experience in a leading role “in IPOs or significant corporate finance transactions.”
The five-year rule can be shorted to three years if at least two of its key personnel have at least five years experience in a leading role in IPOs, or significant corporate finance transactions, Monzon said.
“The exchange will take into account the experience of qualified personnel on an individual basis. And last, professional indemnity insurance will be required from the sponsor for the listing in post listing,” he said.
According to Monzon, the sponsors’ responsibility will be to assess the applicants’ financial condition, viability of the business, future prospects, suitability of directors and officers, and other due diligence information.
“A sponsor will also be required to submit a duly notarized sponsor assessment report to the exchange, containing material information gathered from the due diligence and review process conducted by the sponsor,” he added.