SEC tightens requirements for companies going public

MANILA, Philippines - The Securities and Exchange Commission (SEC) has tightened regulations for companies seeking to go public, requiring them to provide more accurate financial forecast instead of just hypothetical projections.

To put it simply, the SEC wants companies to provide financial numbers including income and revenues by providing forecast – which would be based on certain courses of actions – instead of just mere projections.

Documents obtained by The Star showed that the SEC’s Markets and Securities Regulation Department (MSRD) wants some IPO-bound companies to submit a Prospective Financial Information or PFS that uses forecast and not just projections.

This is in accordance with the Philippine Standard on Assurance Engagements or PSAE 3400.

However, one company, in complying with the SEC’s requirements, submitted a “hypothetical-assumptions projection” instead of a forecast which the SEC said is more appropriate for companies seeking to go public.

A forecast provides expected financial results using best assumptions on conditions and courses of action, while a hypothetical projection comes up with expected results and course of action based on one or more hypothetical assumptions.

The SEC said that while these two are possible approaches in preparing a PFS, companies should take into account that it would be raising funds from the public through the initial public offering of its equity securities.

As such, the SEC said the use of the hypothetical assumptions project approach, which is limited in use, would not be consistent with public interest and investors’ protection.

Given the two possible approaches in preparing the PFS, prudence dictates that companies should consult with regulators on which approach it would use to meet the requirement of the SEC.

“It is the position of this department, that the company’s PFS on file is not consistent with public interest and investor’s protection, thus, the MSRD respectfully submits that the company be directed to file a Prospective Financial Information using the best estimate forecast,” the MSRD said in a letter to one company.

Several companies are seeking to go public this year to follow the steps of Wilcon Depot, the first to debut in the local bourse for 2017.

Other IPO-bound companies are Eagle Cement, which is targeting to debut in May, as well as Pure Energy, BermazAuto, The Big Chill, Xeleb and Audiowav.

The Philippine Stock Exchange hopes to raise P200 billion in capital this year from listings and other fund raising activities coursed through the local bourse.

Last year, total capital raised from PSE including IPOs amounted to P170.12 billion, which was below the P184.60 billion raised for the whole of 2015.