PSE okays proposal on firms buying into listed shell companies

The Philippine Stock Exchange (PSE) has approved a proposal requiring companies intending to buy into a listed shell corporation to comply first with the requirements for undergoing an initial public offering.

PSE president Francis Lim said the move is intended to provide adequate protection to the investing public by discouraging indirect or backdoor listing.

Backdoor listing is another strategy of going public used by a company that fails to meet the criteria for listing in a stock exchange. To get into the exchange, the company acquires an already listed firm, oftentimes a shell corporation, at a cheaper cost. Some companies consider acquiring a public company a cheaper means to go public than an IPO since it does away with the tedious requirements for initial listing.

Companies which for some reason fail to meet the stock exchange’s listing requirements may find that "backdoor" entry is a cost-effective solution to the problem.

To encourage more IPOs, the PSE is moving to liberalize its listing requirements for small and medium enterprises (SMEs).

The exchange is looking at relaxing the track record and operating history requirements of its listing rules to accommodate more companies, particularly SMEs.

To date, only three companies are listed on the SME board, namely SQL Wizard, Makati Finance Corp. and Cashrounds.

The PSE has long been eyeing BOI-registered entities to list on the exchange to help boost trading activity. It has an existing memorandum of agreement with the BOI which aims to observe and implement the provisions of Executive Order 226 or the Omnibus Investments Code of 1987.

EO 226 requires companies registered with the BOI to list in the PSE at least 10 percent of its total subscribed capital stock within 10 years upon registration. Refusal to comply with said law can cause the cancellation of a firm’s BOI registration.

However, some BOI-registered companies are exempted from conducting a public offering. These include BOI-registered companies which are subsidiaries of a listed company and those who have stock option plans.