PSE pressed for time in meeting demutualization

The Philippine Stock Exchange (PSE) will have to work overtime to beat the Aug. 8 deadline for its demutualization and to pave the way for the release of the first tranche in a $100-million loan from the Asian Development Bank (ADB).

Securities and Exchange Commission (SEC) Chairperson Lilia Bautista said the ADB has set aside a $100-million non-bank financial guaranty (NBFG) loan package for the development and institution of reforms in the Philippine capital market.

She said the funding will be released in two equal tranches of $50 million – the first scheduled this year and the balance next year.

The package is exclusive of a $20-million grant that ABD has previously released for the technical assistance and automation needs of the SEC and the PSE.

However, the Manila-based multilateral financing agency has attached several conditions for the release of the fund, one of which is the demutualization of the PSE.

Other conditions include the formulation of a medium-term strategy for reorganizing and developing the structure of the local capital market – which consists primarily of the equities and debt markets–and other policy actions that both the SEC and PSE should undertake.

However, with less than two months to complete its demutualization, the PSE is still in a quandary on how to go about its transformation as the bourse members are expected to decide this week various options to effect the exchange’s conversion from a non-stock to a stock corporation.

Earlier, the SEC rejected the bourse’s plan to transfer the shares of a separate realty company to their members although it allowed the spin-off of the PSE’s property assets into a new company (NewCo) to detach the donated Tektite and Ayala Tower units from a demutualized exchange.

Bautista added the spin-off and transfer of the PSE’s property assets into NewCo would need the consent of the donors – Philippine Realty Holdings and Ayala Land Inc. – both of which have a 10-year restriction on the deeds of donation.

The two properties were donated to the newly-formed PSE in 1994 by Philrealty (Tektite) and ALI (Ayala Tower) as part of the functional merger agreement between the two existing stock exchanges (Manila and Makati) then.

By 2004, the PSE would have fully merged and integrated into its new headquarters at the Bonifacio Global City along with government agencies such as the SEC, DOF, DTI and BOI.

Based on the SEC’s recommended two-phase approach, the value of the appraised property donations would be lumped under a development fund which can be distributed only to the 184 original PSE members.

After the setting up of the development fund, the PSE will then proceed with the spin-off of the donated assets after demutualization without new stockholders. The PSE, together with its designated incorporators, will transfer the donated assets to a new corporation for shares equivalent to the value of the donated assets and distribute these shares to the original member brokers.