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Stock Commentary

PSE wants companies to go public if they avail gov't incentives

Merkado Barkada
MB
It’s hard to tell exactly what Mr. Monzon is referring to when he talks about the “incentives of the government”.
Merkado Barkada

Philippine Stock Exchange [PSE 216.00 2.86%] President and CEO, Ramon Monzon, said in an online mid-year report that he would like to “convince the [Bureau of Investment] to require that all companies that avail of the incentives from the government will be offering shares to the public”.

Mr. Monzon said that the PSE is “handholding” (kind of a condescending term) about 23 companies that are interested in going through the IPO process to list shares on the PSE, and that he hopes that the exchange’s move to nerf listing requirements and to provide an alternative “sponsorship” route for companies that still fail to meet those nerfed requirements, will result in more companies coming forward to IPO.

MB BOTTOM-LINE

First things first: holy vague language, Batman! It’s hard to tell exactly what Mr. Monzon is referring to when he talks about the “incentives of the government”. To some extent, every company on the PSE is likely the recipient of some form of government incentive, whether it be in the form of loan relief, income tax relief, a tax holiday, or some other form of encouragement/subsidy. Second, the PSE should do an introspective on why it feels the need to force companies to use its product (IPO listing of shares), instead of working to improve the product to the point where companies are happy to use it without threat or coercion.

All of the little tweaks that the PSE and SEC have made will help to lessen the burden of undertaking an IPO, but they are hollow victories if the PSE fails to address how its own policies help perpetuate many of its own problems. Why does a company need to be profitable in order to raise money through the PSE? There are plenty of companies on the PSE that lose money hand-over-fist, and have done so for years (blind item referring to Suspended Flag Carrier Airline?). If a company can side-step the profitability requirement with a “sponsorship”, why not develop programs internally that replicate the benefits of that sponsorship without requiring firms to submit to the influence of the incumbent listed powers? I could go on.

The PSE may have great legacy reasons for why its policies are the way they are, but it ought to undertake a complete rethink of whether these policies still serve the purpose they were created to serve in the first place, rather than just horse-trade the settings of the policy sliders. By trying to force companies to list on the PSE, Mr. Monzon seems to imply that he thinks of an IPO listing as something of punishment or “just desserts” for a company that receives government assistance. Many private small firms would agree. Seems like changing that perception might be a great place to start.

 

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