Backdoor listing is a faster alternative to the traditional route of going public due to the exorbitant costs of staging an initial public offering. Under this scheme, inactive listed firms are being acquired by businessmen to evade the stringent requirements of going public.
PSE president Ernest Leung said last week the exchange is considering removing inactive or shell companies from the present roster of listed firms. "We envision a more gradual phase-out of dormant companies," he said.
Leung, however, said the exchange is yet to determine which companies will be considered dormant or subject to delisting." Will it be based on their networth or how long they have been dormant? We are looking at ways to deal with them to ensure the protection of shareholders," he said.
He said once these factors are cleared, the PSE will move to delist the dormant companies with the approval of the Securities and Exchange Commission.
The PSE has been tolerating backdoor listings because it has helped revive moribund companies.
However, the process has been used by some groups as a vehicle for easy entry into the stock market, since backdoor listings do not require numerous documents and expensive fees as initial public offerings.
The PSE has an option to delist a listed company if the firm has repeatedly failed to attract liquidity and/or enough interest over a considerable period of time.
In determining sufficiency of liquidity and interest in the listed firm, the exchange will consider the historical volume as well as the historical bid and seek quotes for the shares as compared to those of other listed firms in the same industry.
The exchange may also delist a listed company if its stockholders equity has become negative and if it fails to comply with the continuing listing requirements of the bourse.
Other grounds for delisting are liquidation, dissolution or the firm’s inability to continue with its business operations, cancellation or revocation of its securities registration with the Securities and Exchange Commmission; and repeated violations of disclosure rules or reportorial requirements. However, there are disadvantages to delisting shares of non-performing stocks, as the investments of some small shareholders who were not able to unload their shares in the market may be locked in the company for a long time.