Small investors up in arms

Minority investors holding stocks of Holcim Philippines, Inc. (HPI) are up in arms over what they perceive is a betrayal by the Philippine Stock Exchange (PSE) to protect their interest.

Last June 29, HPI reported to the PSE that Holderfin B.V., which owned 18.11 percent of HPI, purchased common shares from Sumitomo Osaka Cement Co. representing 9.22 percent of HPI’s outstanding capital stock. This resulted in the minimum percentage of listed securities held by the public (or public float) to go below the 10 percent required to keep its status as a public company.

HPI also informed PSE that it did not have a viable plan to restore public ownership to the required minimum and would, therefore, submit a request for delisting. It was also disclosed that a tender offer will be conducted for the remaining shares of Holcim.

Upon learning of the Holderfin-Sumitomo transaction, PSE suspended indefinitely the trading of Holcim shares. The suspension is supposed to punish the owners and to serve as an example that PSE will not condone violation of its rules.

Apparently, HPI does not really mind the suspension of trading, and only the minority shareholders are the ones suffering the damage and consequences of the suspension.

While PSE’s actions are well within the rules, this has drastically affected the remaining minority shareholders. The loss of liquidity or the ability to trade/sell their Holcim holdings became an unfair imposition, especially if the shareholder may have an emergency requirement for cash.

Left out on a limb

Many of the emails and calls I got when the news of suspension was announced expressed disappointment at the PSE’s action of immediately suspending trading without much regard to the consequences on minority shareholders who would like to exit their position.

As a result, shareholders are not able to use the PSE infrastructure and system to transfer or sell their Holcim shares. Many felt that they were left out on a limb, especially since the PSE repeatedly encourages diversification of the shareholder base to include minority investors.

Small shareholders will now have to undergo the tedious process of dealing with several parties, such as their broker, tender offer agent, the Bureau of Internal Revenue, in addition to preparing and submitting numerous supporting documents. Small investors are also exposed to capital gains and documentary stamp tax.

Victims

The poor small investors have become the victims and collateral damage of PSE’s strong desire to impose discipline and punish owners of publicly listed companies. Is the suspension of trading, with the drastic consequences to minority shareholders, the right punishment really?

Or would it have been better to impose substantial pecuniary penalty as punishment to the violator and allow minority shareholders an easier exit out of their position? Maybe, the PSE should consider that extra mile of service to small investors who serve as life blood of the trading cycle.

From how things stand now, the PSE has consistently been hobbled by the desire to have a wider participation in the local bourse not just by having more companies actively trading, but also having more people participating in it.

Compared to other stock exchanges even in the region, the PSE continues to lag behind in total trading values and innovative offerings. Definitely, it can do more considering that our population is much higher than other countries.

The PSE has time and again held awareness seminars to entice yuppies and senior citizens to invest in the stock market, but without much success. The popularity of investing in stocks has waned significantly from that “golden age” in the 1970s when everyone was agog over initial public offerings and many newly listed companies.

Challenge

Definitely, the PSE has to come up with better ideas that can attract participation from companies and people, and make our local stock exchange one that can be profit sources for investors from firms that need investments.

As more Filipinos climb the economic ladder, investment options in the stock exchange and even in other avenues (like starting a business or buying government instruments) must be clearly visible and easy to subscribe to.

Perhaps because financial literacy of most Filipinos does not start at a young age, very few really explore investing as a source of income generation. Saving money in a bank is still the most acceptable notion of dealing with excess income.

I hear that a growing number of the younger generation even favor pooling funds to start up and manage their own businesses. While the returns can be higher than traditional investment channels, it is also riskier, especially without the protection afforded by more mature institutions and businesses.

Government support

Companies that need investment funds often consider borrowing through banks as a more viable alternative rather than seeking public equity. Even laws like the Real Estate Investment Trust (REIT) Act of 2009 have not generated the response intended.

In fact, the PSE only started trading a REIT in 2020, which unfortunately is still not receiving the desired attention from companies or the public. For an economy that continues to see a growing real estate sector, something is amiss here.

When one considers the $36 billion that our overseas Filipino workers sent home last year, one can only surmise that most of this money went to consumables instead of being invested to earn money to build better futures for the families receiving them.

The Philippines has one of the oldest stock exchanges in Asia, with the establishment of the Manila Stock Exchange in 1927. And yet, those founded later in other countries are undeniably bigger and more successful. Is there still hope for the PSE to emerge on better footing?

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.