PSE suspends trading in 7 non-compliant firms

MANILA, Philippines - The Philippine Stock Exchange suspended yesterday the trading of seven listed firms that failed to increase their public ownership level to a minimum 10 percent. Three other firms whose public ownership were below the required 10 percent -– Philcomsat Holdings Corp., Cosmos Bottling Corp. and Nextstage Inc. – were already under trading suspension prior to the Dec. 31, 2012 deadline.

Non-compliant firms were given until end-December last year to boost their public float.  Failure to do so would mean a six month-trading suspension beginning on the first trading day of 2013. The PSE will automatically delist the shares of these firms if they remain compliant after June 30.

The seven companies were San Miguel Brewery Inc, San Miguel Properties Inc., PAL Holdings Inc., Allied Bank Corp., PNOC-EC, Alphaland Corp. and Southeast Asia Cement Holdings Inc.

The Bureau of Internal Revenue earlier issued a ruling imposing a final tax of five percent or 10 percent of net capital gains arising from the sale of shares of listed firms whose public ownership is below 10 percent.  Previously, trades involving listed firms were only subject to one half of one percent stock transaction tax as mandated by law.

Aside from this, a documentary stamp tax (DST) of P0.75 on each P200 of the par value of the stock will also be applied on the sale.

As this developed, the Shareholders’ Association of the Philippines (SharePhil), an organization that serves as the voice of minority investors of publicly-listed firms, has asked the Department of Finance and the BIR to suspend the imposition of higher capital gains tax and documentary stamp taxes on the trading of shares involving these errant firms.

In a letter to Finance Secretary Cesar Purisima and BIR head Kim Henares, SharePhil said the additional tax burden and transaction costs would have the biggest impact on minority shareholders and would reduce liquidity in the secondary market.

 “The increased liquidity in the secondary market created by the PSE and the lower transactions costs associated with trading in the PSE among others principally enticed minority shareholders to invest their hard-earned savings in publicly-listed firms,” SharePhil said.

SharePhil argued that delisting companies from the PSE would also result in a lower disclosure regime which would adversely affect minority shareholders and “detract from efforts towards good corporate governance because of the lack of market check and reduced price transparency and accuracy.”

While these companies are required to make a tender offer, the offer to minority shareholders may be well below what the true value of the company is worth.

“Minority shareholders are squeezed out of their shareholdings as they are made to choose between an offer which does not offer any premium and may be well below the true worth of the listed company and higher tax and administrative burdens and increased transaction costs.  Either way, the minority shareholders hold the proverbial empty bag,” SharePhil said.

“The Supreme Court has consistently ruled that rules and regulations issued by an administrative agency to implement a law cannot go beyond the terms and provisions of the latter and that such rules should not override but instead be consistent and in harmony with the law they seek to implement otherwise they are void for being ultra vires and unreasonable.  In short administrative officials cannot amend an act of Congress,” SharePhil pointed out.

SharePhil also underscored the need to increase the number of listed firms in the PSE and encourage the development of the capital market.

“Despite the fact that our stock market is one of the oldest in Asia, it remains one of the smallest in the Asia-Pacific region.  The additional costs and burdens would only saddle our already slumbering and costly investment environment,” SharePhil stressed.