Investment houses buck proposal for IPO discount

The Investment Houses Association of the Philippines (IHAP), the umbrella organization of the country’s investment houses, has shot down a proposal of the Philippine Stock Exchange to give a 10-percent discount on the offer price of shares under an initial public offering (IPO).

Jose P. Aquino, head of the Securities and Exchange Commission’s Market Regulation Department, said IHAP visited the SEC Friday to voice its concern over the PSE proposal that will give small local investors an instant 10-percent gain on IPO shares.

The proposal forms part of the revised listing rules of the exchange patterned after the Hong Kong and Malaysian Stock Exchanges. This was adopted to boost liquidity in their respective markets.

According to IHAP, the proposal could do more harm than good to the already lethargic stock market. It said small investors, aiming to get a quick buck, could unload their shares on the first day of listing, to the detriment of other investors.

IHAP said the proposal would entail additional costs for investment houses since they would have to issue two sets of documents for the small investors and the financial institutions ordering a significant number of IPO shares.

The distribution outlets for the 10-percent offer to local small investors may be branches of participating universal banks, investment house as well as brokers.

Under the current listing rules, at least 10 percent of the entire IPO are reserved for small investors or those willing to subscribe to a minimum board lot or whose subscription does not exceed P20,000 or such other amount as the SEC may prescribe.

The PSE board plans to raise this level to 15 percent, depending on the issuer’s discretion and when the issue is five times oversubscribed.

Another issue on the table is the proposed increase of shares offered for book building from 30 percent to 60 percent. This is being made to make the final IPO price more market-determined.

Under the current rules, the percentage allotted for book building may be adjusted depending upon the reception of the market to the IPO.

A bookbuilding program for the domestic market shall be undertaken simultaneously with the international tranche, if any. Only qualified institutional buyers may be allowed to participate in the bookbuilding.

The PSE is also looking at requiring companies to disclose the level of interest in the shares or how much the issue is over-or-under-subscribed. It also wants listing of shares to be made within 10 calendar days rather than 21 from the end of the offering period. – Zinnia Dela Peña