Investing basics: Securities and the capital market

CEBU, Philippines - The Securities and Exchange Commission has urged Cebu-based companies to take advantage of the growing financial market here and consider such advanced form of capital financing to grow.

To grow and expand a business, more capital is needed and money is used to generate resources. Companies can raise capital from the investing public by issuing securities.

Securities are investment instruments -- other than insurance policy -- issued by a corporation, government or other organization which offer evidence of debt or equity.

Director Vicente Felizmenio, Jr. of SEC Markets and Securities Regulation Department cited the notable advantages of going public in raising capital.

He said it is a more efficient way of raising funds.

"It maximizes funders base, maximizes transaction cost in increasing the capital and no need to put up collateral," he explained. "And therefore, the assets within the control of a company could be used productively."

Felizmenio noted hiking capital publicly also enhances access to future capital raising, allows the firm's equity to be a form of currency which is used for collateral purposes and creates liquidity for shareholders.

He added: "It helps companies strengthen their reputation through good governance policies."

However, he likewise pointed out the tedious preparatory process for entering into an initial public offering is one disadvantage of listing a company. The process involves the pre-and post-IPO compliance requirements.

IPO is the first sale of stock by a private firm to the investing public. IPOs are normally issued by younger companies looking for capital to expand.

In an interview on the sidelines of SEC's lecture on equity and debt offerings, SEC Commissioner Blas James Viterbo explained the country has enough cash domestic liquidity to meet the demands for IPOs.

Under the Aquino administration, Viterbo stated the commission has so far approved P569 billion worth of applications for registration securities. From 2001 to mid of June 2010, SEC had registered a P599 billion of applications.

The commissioner said the good prospects of the Philippine economy would further drive the financial market, noting the government's target of 6.5 percent to 7.5 percent GDP growth this year and 7 percent to 8 percent for next year.

Stability in inflation and exchange rates have also been noted, he added.

In addition, Director Lindeza Rogero-Gavino of SEC Cebu said that yesterday's lecture was part of a series of talks that would help educate the business community of Cebu and Visayas on the benefits of listing a company publicly to raise money. Some members from Cebu and Mandaue Chambers of Commerce and Industry, Cebu lawyers and accountants and company executives joined the talk on latest procedures and information on securities registration.

Stock corporations

As of August this year, SEC Cebu has registered 1,122 new stock corporations and has approved a net P8.5 billion hike in authorized capital stock applications.

Last year, it registered 861 companies with total paid up capital of P4.7 billion. It also approved a net P7 billion increase in capital stock applications.

SEC's Cebu extension office is the biggest in terms of volume of corporate registrations. (FREEMAN)