DOF-Landbank move surprises PSE-PDS

MANILA, Philippines — The Philippine Stock Exchange (PSE), operator of the local bourse, was caught by surprise on Friday after the Land Bank of the Philippines announced it was buying a controlling stake in the Philippine Dealing System Holdings Corp. (PDSHC), which operates the country’s fixed income exchange.

In what may be a major blow to the PSE’s plan to merge the two exchanges, Finance Secretary Carlos Dominguez, chairman of Landbank, then took a swipe at the PSE, saying that it “failed to comply with provisions of the Securities Regulation Code (SRC) in relation to their plan to acquire the PDSHC.”

Landbank’s move comes while the PSE is in the process of acquiring PDSHC as part of a plan to develop the country’s capital markets. 

Dominguez said it would no longer tolerate the actions of “private institutions in thwarting the government’s goal of attaining a robust and inclusive financial system through the development of the country’s capital markets.”  

“The development of the capital market is being slowed down by the PSE’s protracted compliance with the law. The Duterte administration will no longer tolerate private institutions thwarting the goal of achieving a robust and inclusive financial system,” Dominguez said.

Dominguez said three months after President Duterte took office, he told the PSE sometime in September 2016 to follow the law on the allocation of PSE shares to other shareholders so that it can comply with the 20 percent ownership

limit of exchanges and exchange controllers as mandated under the SRC.  

This was a requirement before the PSE could proceed with acquiring 100 percent of the outstanding capital stock of the PDSHC.  

“As of now, 16 months later, they are not compliant,” Dominguez said. 

Dominguez said Landbank’s proposal to acquire at least 66.67 percent of PDSHC has his approval as long as it makes commercial sense for the bank.

“Landbank has my permission.  If it’s good business for you, do it. If it doesn’t make money for you, don’t do it,” Dominguez said.

“Lankbank officials said they would make money from it. Landbank has to increase its profits because the more money they make the more dividends they pay to the government. It will (also) achieve goals to improve the efficiency of the domestic capital market,” he added.

The PSE needs to reduce its ownership of the stock exchange to 20 percent from 27.9 percent to be able to proceed with its plan to merge the two exchanges. Under the SRC, no single industry or business group should own more than 20 percent of an exchange. 

On Friday, Landbank said it plans to acquire at least 66.67 percent of PDSHC.

“The maturation of the domestic fixed income market, improved financial sophistication of local investors, ASEAN financial integration, and a high growth economy underpinned on infrastructure development make PDS an attractive business model,” Landbank president and CEO Alex Buenaventura said in a letter to the bank’s board of directors seeking approval for the acquisition. 

Sought for comment on Dominguez’ statement, PSE chairman Jose Pardo said they respect the points raised by Dominguez.

“We respect the points he’s raised. We’re addressing it. We’re all committed to comply, but it’s not that easy. You cannot just undo ownership…There are legal processes that have to be followed,” Pardo said.

Still, he expressed optimism the PSE-PDS merger would still happen but was quick to stress, “I don’t want to preempt anybody.”  

PDS Group president and CEO Cesar Crisol likewise said they were surprised to hear about Landbank’s plan.  

“I’m not aware of it. We don’t know what the proposal is. And it’s a matter between the shareholders,” Crisol said.  

Pardo, meanwhile, said the PSE would push through with the follow-on offering of shares in February after obtaining the SEC approval last week.