Government to penalize erring listed companies

MANILA, Philippines - The government is set to penalize companies whose shares are being traded at the Philippine Stock Exchange (PSE) that fail to maintain a public float of at least 10 percent of their issued capital with the imposition of higher taxes, Finance Secretary Cesar Purisima said over the weekend.

Purisima told reporters in an interview that the Bureau of Internal Revenue (BIR) would ask the Securities and Exchange Commission (SEC) to strictly impose the minimum public float as stated under the PSE’s Rule on Public Ownership as foreign investors are complaining about the failure of some listed companies to comply with the required 10 percent minimum.

“We are asking the SEC to strictly enforce the minimum public float requirement for listed companies. The float of some of the companies is less than 10 percent and foreign investors are complaining,” Purisima stressed.

Last October, the SEC approved the reinstatement and amendment to the rules. 

Under section 3 of Article XVIII on the Continuing Listing Requirements of the Listing and Disclosure Rules, listed companies are required at all times to maintain a minimum percentage of listed securities held by the public of 10 percent of their issued and outstranding capital exclusive of treasury shares. A listed company should immediately inform the PSE if it becomes aware that the number of listed securities which are in the hands of the public has fallen below the prescribed minimum percentage.

Under the SEC-approved rules on minimum public ownership, listed companies are given a grace period of 12 months instead of the proposed 18 months to raise its public ownership if it falls below the minimum requirement. If a listed firm is not able to comply with the prescribed minimum percentage after the grace period, the PSE would charge additional listing maintenance fees based on the percentage shortfall in the public float and the period of non-compliance.

Immediately after the 36th month of non-compliance after the grace period of 12 months, the PSE would suspend the trading of the listed company’s securities and initiate delisting procedures. This is more stringent than the earlier proposed rules which suspends a listed firm only if the shortfall is for more than four years or five years if shortfall is over half of minimum requirement after the 18-month grace period.

Purisima said that regulators need to make sure that the rules on minimum public float are implemented to make sure that the public investors are not shortchanged.

“The goal here is not just to raise taxes. The less the float, the easier it is to manipulate prices. Ensuring higher public float would lead to transparent [market], make it more open to investors abroad,” the finance chief explained.

The DOF secretary has asked Internal Revenue Commissioner Kim Jacinto-Henares to consider the imposition of the one-fourth of one percent final tax as well as the 10 percent capital gains tax.

“I have asked the BIR to look at this because public listing is key to their availing public tax, whether the transfer of their shares should be subject to normal capital gains tax or transaction tax,” Purisima said.

The minimum public float rule is in line with the Capital Market Development Plan (CMDC) action plan that aims to provide a fair and efficient facility for price discovery and to ensure that sufficient liquidity exists.

“This would lead to vibrant, deeper market that is less susceptible to price influence. It’s less what we will collect but more that our stock market is at par with other markets,” he added.

The minimum public ownership rule has been debated by several boards of the PSE until 2005 when it was revoked as a continuing listing requirement. The PSE imposed the rule only for initial listing and back door listing applications.

Stock exchanges in Hong Kong, Singapore and Thailand imposed minimum float requirements of between 10 and 25 percent.