This is a common question asked in IPO listing sessions hosted by The Philippine Stock Exchange, Inc. (PSE or Exchange). Several factors are considered to arrive at an answer to this question. For entrepreneurs who live out the “It’s always good to be ready” adage, the preparation starts as soon as they aspire to become a publicly listed company (PLC). These business owners do three basic things: 1.) Find out where they stand vis-à-vis the IPO listing requirements; 2.) Get acquainted with potential financial advisors; and 3.) Map out a plan to slowly but surely make the company IPO-ready.
To help businesses evaluate their current prospects, PSE published an IPO Readiness Assessment Form on its website. Most of the required information on the form are focused on the company’s financials. The spotlight on numbers highlights the significance of financial condition as one of the key pre-requisites to IPO listing. The firm’s financial track record should meet the profit test set by the Exchange. For instance, the profit criteria to list on the Main Board are a cumulative net income of ₱75 million in the last three years and a net income of ₱50 million in the most recent year. For the Small Medium and Emerging (SME) Board, a listing applicant should have a cumulative EBITDA, excluding non-recurring items, of at least ₱15 million for the last three (3) fiscal years or such shorter period as the company has been operating or a cumulative operating revenues or sales of at least ₱150 million for the last three (3) fiscal years or such shorter period as the company has been operating, with at least 20 percent average net sales or operating revenue growth rate for the last two (2) fiscal years. Aside from the profit test, there are also specific requirements pertaining to stockholders’ equity and market capitalization.
To formally assist interested and potential listing applicants, the Exchange introduced the Listing Engagement and Assistance Program (LEAP) in 2021. A free service provided by the Exchange, LEAP serves as a one stop shop for pre-listing needs, including assistance in connecting companies with experienced IPO advisors.
Finding a suitable financial advisor early on has several benefits. The advisor identifies areas for improvement based on the IPO checklist and helps the company remain on track with its IPO preparations. A longer interaction also gives the advisor more opportunities to better understand the business. This is valuable in crafting the message and narrative when it’s time to market the company to prospective investors.
Since the program was launched, three (3) companies have already transitioned from LEAP to become PSE listed firms. As of end-July 2023, over 60 companies from various sectors are enrolled in the program. These LEAP participants are in different stages of IPO preparations; a tenth are ready to do an IPO in less than a year while a third need one to two more years and the rest require more than two years.
“Business owners looking to raise funds through the stock market may not know where or how to begin their IPO journey or may feel overwhelmed by the process. Under our LEAP program, we guide them through the various stages of an IPO application and advise them on how to comply with the various requirements. A successful IPO will be beneficial to all capital market stakeholders and an IPO undertaken by a well-prepared company will have better chances to succeed,” said PSE President and CEO Ramon S. Monzon.
Aside from ensuring that listing criteria are met, the pre-IPO period provides an opportunity to gear up for the regulatory and shareholder obligations of a publicly listed company. This includes putting together an Investor Relations team, familiarizing its compliance team about material information that need to be disclosed to the public, among others.
A maiden public offering is an undertaking unique to each listing applicant. The pace to reach the IPO-ready stage is set by the company, together with its advisors. This is usually dictated by the urgency to raise funds and the commitment of its people to prepare for the transition from a private entity to a publicly listed firm.
*Interested to sign up for LEAP? Please contact PSE’s Marketing Services Department at marketingservices@pse.com.ph.
*** This is a contributed article through the FINEX CMD Committee and PSE partnership. The opinion expressed herein does not necessarily reflect the views of FINEX.