PSE squabble is hurting RP’s image abroad

The infighting at the Philippine Stock Exchange (PSE) has been sending an embarrassing signal abroad, forcing the country’s economic planning officials to fend off inquiries from foreign investors wary of the already shrinking stock market.

The officials noted that the squabble at the PSE board has been a chronic problem but the escalation of the conflict has created enough uncertainty to provoke at least one government-controlled pension fund, the Government Service Insurance System (GSIS), to threaten the pullout of all its investments in the bourse.

According to a top economic official, investors and market regulators abroad have expressed confusion over the bickering in the PSE considering the miniscule size of the local market.

The official said that Philippine representatives have had to explain why the PSE leadership was locked in a prolonged conflict at the expense of market reforms that have not been carried out as planned.

"Investors and even other regulators abroad are confused about the infighting there considering how small the market already is," the official told reporters over the weekend.

"It’s embarrassing – everyone knows how small our market is," the official said. "But we’ve had to explain that in a small pond, even a shrimp would look like a king prawn."

The PSE is the country’s only equities exchange, trading an average of less than P900 million every day with the index slightly above 1,500 points compared to its heyday before the 1997 crisis when the index was at over 3,000 points.

Because of the exchange’s resistance to reforms, the PSE has never been able to recover from the 1997 crisis, losing even more credibility in 1999 for failing to act decisively against massive insider trading on the controversial BW Resources Corp. stocks.

The GSIS had already threatened to pull out its investments in the PSE, saying in a statement that the exchange should shape up as it expressed frustration over the dispute among PSE shareholders over the entry of new investors, a problem compounded by disagreements between PSE and the GSIS over the selection of a new president for the exchange.

The PSE board has already elected lawyer Francis Lim as its new president, replacing Cayetano Paderanga Jr, who resigned earlier, citing personal reasons.

GSIS owns a 9.1-percent stake in the PSE but some shareholders had demanded the reconsideration of the sale of the exchange’s 40-percent stake to institutional buyers.

The PSE had earlier sold 5.265 million shares to GSIS, Philippine Long Distance Telephone Co. Beneficial Trust Fund, San Miguel Retirement Fund, Kim Eng Investment Ltd, KE Strategic Pte. Ltd., A. Soriano Corp. and Equinox Partners.

The shares represented 40 percent of PSE, sold at P119.50 each compared with the prevailing market price of P195 at the time of the sale.

Protesters argued that the sale was unfair to existing shareholders because the shares were sold below market price and that the transaction should have been approved by at least two-thirds of PSE’s existing shareholders.

Under the Securities Regulation Code, the PSE was allowed to sell shares either through private placement or public offering in order to comply with the provision that prohibited any single industry sector from owning more than 20 percent of the exchange’s outstanding shares.

Prior to the sale, the PSE was 100-percent owned by stockbrokers.

PSE feud discouraging investors — Barbers Investors, specially foreign businessmen and companies, may lose their interest in the stock market if the Philippine Stock Exchange (PSE) fails to get its act together.

The apprehension was made by Rep. Robert Ace Barbers (Surigao del Norte), after the Government Service Insurance System (GSIS) signified its intention to return its PSE shares representing 9.1 percent of the total outstanding capital of PSE to the bourse.

Invoking public interest, the solon said the ongoing rift among PSE stockholders hinders its objectives to participate in formulating policies and reform in the stock market.

"How can the stock market attract more investors when there is an ongoing dissension among the members of the board of the PSE. Nobody wants to ride a troubled ship," he said.

Like the state pension fund, the congressman said he would like to see meaningful reform in the PSE and the settlement of the dispute, which has hurt the development of the equities market.

Earlier, the GSIS threatened to return its shares to the bourse and amid the Securities and Exchange Commission (SEC) move to look into the stock transaction of GSIS coursed through the First Management Resources and Securities Corp.

The SEC inquiry was spurred by text messages sent to SEC officials from unknown sources complaining about First Resources, cornering all GSIS stock market deals for the first half of the year. There is no way to know where these messages came from.

The lawmaker said he is warned about the SEC move to investigate the stock transaction adding it is ill advised and could embolden some unscrupulous individuals to smear other companies using text messaging.

Vivian Yuchengco, former PSE chairman and owner of First Resources has welcomed the plan of the SEC for the sake of transparency and show that the companies’ transaction are above board and in accordance with regulations.

The rift among PSE shareholders was fueled by the entry of private investors in the PSE last February. The private placement of PSE shares sparked dissension among the brokers since the private placement price of P119.50 is significantly lower than the price range of P190 to P200 at that time.

Barbers urged the PSE to avoid unproductive divisiveness and move forward to become a more competitive modern financial market. "Our institutions play a crucial role in the government’s bid to boost the economy and any sign of instability within these agencies could drive away potential investors," Barbers said.