The Philippine Stock Exchange needs to tweak further its listing rules for Small, Medium and Micro-Enterprises (SMEs) if it is to be the sector’s primary source of fresh capital.
During a Financial Executives of the Philippines webinar on financial inclusion, Securities and Exchange Commission Director Vicente Graciano Felizmenio Jr. said that, currently, “capital market based financing can complement or supplement the traditional source of financing for our SMEs, but it should not be made as a substitute.”
PSE President Ramon Monzon said the bourse is currently trying to revise its listing rules for SMEs to make it more attractive for this sector to raise cash from the equities market. The proposed changes are awaiting SEC approval.
“Basically, we have proposed to remove the requirement that applicants must have a positive EBITDA (earnings before interest tax depreciation and amortization) in at least two of the three fiscal years preceding the filing of application,” Monzon said.
He added that, “We are providing an alternative criterion by which an applicant may qualify for listing. If a potential issuer is unable to meet the requirements, it may still qualify for a listing, if it has sales or operating revenues of at least P150 million for the last three years or for such shorter period the company is operating with at least 20 percent average net sales, or operating revenue, growth rate over the last two years.”
Monzon said this will replace the existing rule that requires a company listing at the PSE’s SME board to have at least P15 million in EBITDA for the last three years prior to its listing application.
“So even without any EBITDA or net profit, an SMEs now will be allowed to list if they meet certain sales targets or certain sales growth targets,” he said.
The PSE is also looking at requiring listing SMES to have P25 million stockholders equity instead of the current requirement of a P100 million minimum authorized capital, with 25 percent subscribed and paid up.
“Meaning, if a company has been operating for a while, even the retained earnings will be included in the computation of the P25 million stockholders equity,” Monzon said.
He said “We've also proposed to allow holding companies that have operating subsidiaries to list in the SME board whereas previously they were not. The only rules that we've kind of tightened up for the SME board is if you apply for listing in the SME board, you will never be allowed to assign your company for a backdoor listing.”
The PSE is also looking to introduce what is called “sponsored listing” where an accredited investment bank hand-holds the company from its initial public offering (IPO) phase up to three years after listing to ensure that the company remains compliant with listing and continuing listing rules and disclosure rules for publicly-listed companies.
“In the sponsor model, the applicant's suitability for listing will be evaluated in the first instance by a listing sponsor accredited by the exchange. Using this and using the sponsors own deal selection criteria.
“If the listing sponsor is satisfied, as to the applicant's suitability for listing, after assessing its financial condition, business viability, future prospects and management track record among others, it shall endorse the listing application to the exchange, which are passed upon the application using our Luxe listing criteria,” Monzon said.
“The listing sponsor will be required to provide guidance including business and compliance advisory services and ensure for three years after listing,” he added.